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Author 


9 


Title: 


Marketing  and 
merchandising 

Place: 

New  York 

Date: 

[1 923] 


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MASTER   NEGATIVE   # 


COLUMBIA  UNIVERSITY  LIBRARIES 
PRESERVATION  DIVISION 

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Butler,  Ralph  Starr. 

Marketing  and  merchandising,  by  Ralph  Starr  Butler 
...     New  York,  Alexander  Hamilton  institute  fl923] 

xxii,  363  p.  IW^.  (Added  t.-p,:  Modern  business;  a  series  of  texts  pre- 
pared as  part  of  the  modern  business  course  and  service  ...  Alexander  Ham- 
ilton institute,     iv.  Si) 

Series  title  in  part  on  t.-p. 
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1.  Salesmen  and  salesmanship.    2.  Retail  trade.        i.  Alexander  Hamil- 
ton inllitute,  New  York.    n.  Title.       — 


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Marketing  and  merchandising 


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Modern  Business 

A  Series  of  Texts 
prepared  as  part  of  the 

Modem  Business  Course  and  Service 


-   Registered  Trade  Mark 
VniUd  States  and  Great  Britain 
Marca  Registrada,  M.  de  F, 


« 


Alexander  Hamilton  Institute 


Modern  Business  Texts 

\. 

Prepared  as  part  of  the 

Modern  Business  Course  and  Service 


Marketing 
and  Merchandising 


1.  Business  and  the  Man 

£.  Economies 

The  Science  of  Business 

3.  Business  Organization 

4.  Corporation  Finance 

5.  Marketing  and 
Merchandising 

6.  Salesmanship  and  Sales 
Management 

7.  Advertising  Principles 

8.  OflBce  Administration 

9.  Accounting  Principles 

10.  Credit  and  Collections 

11.  Plant  Management 

12.  Cost  Finding 

13.  Advertising  Campaigns 


14.  Business  Correspondence 

15.  Transportation 

16.  Foreign  Trade  and 
Shipping 

17.  Banking 

18.  International 
Exchange 

19.  Insurance 

20.  The  Stock  and  Produce 
Exchanges 

21.  Accounting  Practice 

22.  Financial  and  Business 
Statements 

23.  Investments 

24.  Business  and  the 
Government 


By 

Ralph  Starr  Butler 

Advertising  Manager,  United  States  Rubber  Company 


Modern  Business  Texts 

Volume  5 


BDITOR-m-CHIEP 

JOSEPH  FRENCH  JOHNSON 

EDITORS,  WRITERS  AND  CONSULTANTS 

[  See  list  on  page  V  of  Volume  I  ] 


Alexander  Hamilton  Institute 

New  York 


I 


— .  A 


Copyright,  1923,  by  Alexander  Hamilton  Institute 

Copyright  in  Great  Britain,  1923,  hy  Alexander  Hamilton  Institute 

All  rights  reserved,  including  translation  into  Scandinavian 

Made  in  U.S.A. 


■•mr-9 


a50 


\f*   t- 


PREFACE 

In  all  business,  profits  depend  ultimately  upon  the 
ability  to  sell  goods  and  services  advantageously.  A 
factory  may  possess  every  facility  for  maximum  pro- 
duction at  minimum  cost,  but  unless  the  selling 
methods  are  carefully  designed  to  meet  the  peculiar 
requirements  of  the  product  and  of  the  market,  the 
business  can  not  be  conducted  at  a  profit.  The  pro- 
fessional man  and  the  business  house  dealing  chiefly 
in  services  instead  of  goods  likewise  find  the  basis  of 
profit  largely  in  the  ability  to  get  in  touch  with  those 
who  need  what  they  have  to  offer  and  in  satisfying 
that  need  in  the  most  acceptable  manner. 

This  Text  deals  with  the  marketing  of  manu- 
factured goods.  It  is  concerned  chiefly  with  the 
various  methods  of  getting  goods  from  the  manu- 
facturer to  the.  consumer,  and  with  the  many  problems 
arising  from  the  compHcated  trade  relations  of  mod- 
ern commerce. 

The  Modern  Business  Text  in  further  volumes 
takes  up  special  problems  of  selling.  Two  different 
expressions  of  the  selling  idea,  advertising  and  sales- 
manship, are  presented  in  separate  Texts,  while  the 
general  principles  of  salesmanship  are  exemplified  in 
the  Text  on  "Business  Correspon(ience."    Further- 


VI 


FRSFACfi 


more,  it  may  be  noted  that  some  aspects  of  the  mar- 
keting of  raw  materials  receive  attention  in  the  Text 
on  "The  Stock  and  Produce  Exchanges." 

In  conclusion  the  author  desires  to  express  his  obli- 
gation to  the  officers  of  the  Alexander  Hamilton 
Institute  for  helpful  suggestions  in  working  out  the 
plan  of  the  present  volume,  and  especially  to  Mr.  S. 
Sedekneier,  Assistant  Staff  Secretary,  for  the  col- 
lection of  valuable  material  for  use  in  the  treatment 
of  the  subject. 

Ralph  Starr  Butler. 


TABLE  OF  CONTENTS 

CHAPTER  I 

THE  FIELD  OF  MARKETING  AND  MERCHANDISING 

SECTION  '***'■ 

1.  Two  Methods  of  Selling 1 

2.  The  Basis  of  Sales  Policies 1 

3.  The  Meaning  of  Marketing  and  Merchandising  .  2 

4.  The  Place  of  Marketing  in  Business  ....  3 

5.  Difference  Between  Marketing  and  Merchandising  4 

6.  Marketing  Factors 6 

7.  Wholesale  Marketing  and  Merchandising      .      .  5 

8.  Retail  Merchandising 6 

9.  Common  Interests  of  All  Trade  Factors  ...  7 


CHAPTER  II 

MARKETING  CHANNELS— PAST  AND  PRESENT 

1.  Trade    Channels 8 

2.  The  Influence  of  Tradition  and  Competition  .      .  8 

3.  Selling  Direct  to  Consumer 9 

4.  The  Canvasser's  Opportunity 10 

6.     When  the  Specialty  Salesman  Is  Used       .      .      .11 

6.  Direct  Selling  by  Mail .  12 

7.  Importance  of  the  Retail  Distributor  .      .      .      .  13 

8.  Types  of  Retailers 14 

9.  The  Jobber's  Place 16 

10.  The  Old  Chain  of  Distribution 17 

11.  The  Modem  Chain 17 

12.  Selling  Problems  and  Manufacturing  Problems   .  18 

13.  Who  Is  a  Middleman? .19 

vu 


viii        MARKETING  AND  MERCHANDISING 

HCTIOlf  PAQB 

14.  What  the  Middleman  Does  .......  20 

15.  Four  Kinds  of  Utility 20 

16.  The  Middleman  as  a  Producer 21 

17.  Why  Middlemen  Are  Necessary 23 

CHAPTER  III 

THE  LOCAL  RETAILER 

1.  Meaning  of  Local  Retailer .26 

2.  Development  of  Specialty  Stores 26 

3.  Why  the  General  Store  Appeared 27 

4.  Rise  of  the  Department  Store 27 

5.  Importance  of  General  Stores  ......  28 

6.  Competitive  Strength  of  General  Stores  ...  28 

7.  Weakness  of  the  General  Store 29 

8.  Changes  in  Rural  Merchandising 30 

9.  Problems  of  the  General  Store 31 

10.  The  General  Store  as  a  Manufacturers'  Outlet  .  32 

11.  Importance  of  Specialty  Stores 34 

12.  Why  the  Specialty  Store  Exists 34 

13.  Complete   Stocks 35 

14.  Service  and  Its  Cost     ........  35 

15.  Problems  of  Specialty  Stores  ......  36 

16.  Limitations 36 

17.  Buying  Weakness 37 

18.  Selling  Thru  the  Specialty  Store 37 

19.  Department  Stores  and  Their  Influence   .      .      .  38 

20.  Operating  Economies  of  Department  Stores  .      .  38 

21.  High  Cost  of  Doing  Business   ......  39 

22.  The  Appeal  of  Convenience 40 

23.  Advantages  Resulting  from  Size   .....  40 

24.  Buying  Strength 41 

25.  Extent  of  Price  Appeal 42 

26.  Competitive  Weakness  of  Department  Stores  .      .  43 

27.  The  Price  of  Department  Store  Cooperation  .      .  43 


CONTENTS 


IX 


CHAPTER  IV 

THE  CHAIN  STORE  ^ 

PAGE 
SECTION 

1.  The  Chain's  Place  in  Merchandising  ....  46 

2.  Extent   of   Chain   Store   Operations    ....  46 

3.  Fields  in  Which  Chains  Are  Found     ....  47 

4.  Kinds  of   Chains -  48 

5.  Financial  Strength  ....       ^       ....  49 

6.  Advantages  of  Location 49 

.  7.     Opportunities  to  Standardize 50 

8.  Dangers   of   Standardization    .       .       .       .       .       ^51 

9.  Salaries  and  Efficiency 52 

10.  Chain  Store  Advertising 52 

11.  Accounting   as   an  Asset 53 

12.  Buying  Strength 53 

13.  Buying   Organization 54 

14.  The  Source  of  Low  Selling  Prices  .....  55 

15.  Chain  Store  Expenses 55 

16.  Low  Profits  and  Quick  Turnovers 56 

17.  Importance  of  Price  Appeal   ......  57 

18.  Are  Chain  Stores  Depression  Proof?  ....  57 

19.  Weaknesses  of  the  Chains .58 

20.  How  the  Independent  Can  Compete    ....  59 

21.  The  Manufacturer's  Point  of  View    ....  60 


CHAPTER    V 

THE  MAIL-ORDER  HOUSE 

1.  Influence  of  Selling  by  Mail 

2.  Who    Sells   by    Mail.?   .      . 

3.  Extent  of  Mail  Sales    .      . 

4.  When  Selling  by  Mail  Began 

5.  The  Effect  of  Rising  Prices 

6.  Inadequate  Stocks  in  Country  Stores 

7.  Appeal  of  the  Mail-Order  Catalog 


63 
64 
64 
65 
66 
66 
67 


i 


i 


X.  MARKETING  AND  MERCHANDISING 

SECTION  PAG" 

8.  A  National  Business 68 

9.  Are  Mail-Order  Prices  Always  Low?  ....  68 

10.  Causes  of  Low  Prices 69 

11.  Operating  Savings 70 

12.  Savings  from  Efficient  Management    ....  71 

13.  The  Cost  of  Selling  by  Mail 72 

14?.     Lack  of  Personal  Contact 73 

15.  Other  Disadvantages  of  the  Mail-Order  House   .  73 

16.  Opportunity  of  the  Local  Store 74 

17.  Growth  of  Better  Country  Storekeeping  ...  75 

18.  What  Happened  in  1921 75 

19.  Changing  Prices  and  Their  Effect  on  Mail-Order 

Houses 76 

20.  '  Future  of  the  Mail-Order  House 77 

21.  Wholesale  Selling  by  Mail 78 

CHAPTER  VI 

THE  JOBBER  AND  HIS  STATUS 

1.  Jobber's  Service  Little  Understood     ....  80 

2.  What  Are  Jobbing  Lines? 80 

3.  What  Is  the  Jobber's  Pay  ? 81 

4.  Jobber  Is  Specialist  in  Marketing 82 

5.  Jobber  Has  Ready-Made  Sales  Force  ....  83 

6.  Jobber  Cultivates  Market  Intensively  ....  83 

7.  Storage  Service 84 

8.  Service  in  Carrying  Accounts 84 

9.  Variations  in  Jobber's  Service 85 

10.  How  Jobber  Serves  Retailer 86 

11.  Difficulty  in  Keeping  Complete  and  Well-Balanced 

Stocks 86 

12.  Need  of  Capital 87 

13.  Credit   Arrangements 88 

14.  Struggle  for  Survival 88 


CONTENTS  xi 

PAOS 

8BCTI0N 

15.  When  Jobber  Is  Necessary 89 

16.  Jobber's  Service  to  Consumer 90 

17.  Jobber  Not  to  Be  Eliminated 90 

18.  Increased  Buying  Power  of  Retailers  ....  91 

19.  Pressure  of  Competition .91 

20.  Ease  of  Buying  Direct 92 

21.  Retailers  Know  Sources  of  Supply      ....  92 

22.  Some  Lines  Not  Sold  by  Jobbers 92 

23.  Why  Manufacturer  Sells  Direct 93 

24.  Jobber's  Inability  to  Push  One  Line  ....  93 

25.  Desire  to  Keep  Close  to  the  Market  ....  94 

26.  Some  Jobbers  Antagonistic  to  Advertising   .      .  95 

27.  EfFect  of  Price  Cutting 96 

28.  Exclusive  Agencies  and  Direct  Selling       ...  96 

29.  Complete  Lines  and  Nature  of  Products  ...  96 

30.  Lowered  Cost  of  Direct  Sales 97 

31.  Direct  Selling  is  Natural  Tendency   .      .      ...  98 

CHAPTER  VII 

SPECIAL  DISTRIBUTING  FACTORS 

1.  Kinds  of  Special  Factors   ...;...      99 

2.  Special  Wholesale  Middlemen  .      .      .      .      .      .99 

3.  The  Influence  of  Custom 100 

4.  Limited   Capital   as   a  Justification   for   Special 

Middlemen 101 

5.  Eff^ect  of  Small  Output  ........   101 

6.  Distance  from  the  Market 102 

7.  Definitions  vs.  Common  Usage 102 

8.  The  Agent 102 

9.  Where  the  Agent  Is  Found  .      .      .      .      .      .      .103 

10.  Two  Kinds  of  Agents 104 

11.  Wrong  Use  of  Word  Agent       ......   104 

12.  The   Commission  Merchant      .      .      .      .      .      .   104 


4 


xii         MARKETING  AND  MERCHANDISING 

SECTION  PAQl 

13.  The  Banking  Function 105 

14.  Commission  Merchants  Who  Are  not  Commission 

Merchants .    105 

15.  The  Broker 106 

16.  The  "Regular"  Broker 106 

17.  The  "Casual"  Broker 107 

18.  How  Cotton  Goods  Are  Sold   .      .      .      .      .      .108 

19.  The  Mill  Agent        ........    ^.    109 

20.  How  the  Broker  Functions 109 

21.  The  Converter 110 

22.  Remaining  Factors  in  the  Chain 110 

23.  Variation  in  Marketing  Procedure       .      .      .      .111 

24.  The   Auction .      •      .      .112 

CHAPTER  VIII 

COOPERATIVE  BUYING  GROUPS 

1.  Purpose  of  Cooperation 114 

2.  Cooperation  Abroad 115 

3.  Extent  of  Cooperation  in  United  States  .      .      .115 
4«.  Cooperation  a  Class  Movement     .      .      .      .      .116 

5.  Influence  of  Low  Wages 117 

6.  Need*  of  Loyalty IIT 

7.  Effect  of  Agricultural  Conditions 118 

8.  Kinds  of  Cooperative  Buying 118 

9.  Retail  Buying  Exchanges .119 

10.  Cooperative  Stores 119 

11.  Possibility  of  Low  Selling  Prices 120. 

12.  Cooperative  Wholesale  Societies 121 

13.  Cooperation  with  Producers'  Organizations   .      .121 

14.  Cooperative  Jobbing  Houses 122 

15.  Wholesale  Semi-Cooperation 123 

16.  Cooperative  Strength 123 

17.  Cooperative  Weakness  .      .      .      .      .      .      .      .    124 

18.  The  Manufacturer's  Problem 125 


CONTENTS 


Xlll 


CHAPTER  IX 

STUDY  OF  THE  PRODUCT 

SECTION  ^^^^ 

1.  Necessity  of  a  Marketing  Plan 128 

2.  Importance  of  Trade  Relations 129 

3.  Scope  of  the  Discussion 129 

4.  Analysis  in  Business •      •    130 

6.     Manufacturer's  Point  of  View 131 

6.  When  Analysis  Should  Be  Made 131 

7.  Four  Functions  of  Business     ......    132 

8.  Two  Purposes  of  Product  and  Market  Analysis  .    133 

9.  Making  Sure  of  the  Product 133 

10.  Effect  of  Raw  Material  Prices  ......    134 

11.  Who  Controls  the  Raw  Material? 135 

12.  Capacity  of  the  Plant 135 

13.  Manufacturing   Costs 135 

14.  Financial    Considerations 136 

15.  Bulk  or  Package  Sales?      . 137 

16.  What  Is  the  Product  For?  .......    138 

17.  Changes  in  the  Product 139 

18.  Possibility    of   Standardization 140 

19.  Can  the  Product  Be  Sold? 140 

20.  Nature  of  Demand 141 

21.  Brand    Consciousness 142 

22.  Influence  of  Prejudices        . 142 

^3.     Is  the  Product  Technical? 143 

24.  Necessity   or  Luxury 143 

25.  Fad  or  Staple 144 

26.  How  Often  Will  the  Customer  Buy?   .      .      .      .144 

27.  The  Problem  of  Selling  Seasons    .      .      .      .      .145 

CHAPTER  X 

STUDY  OF  THE  MARKET 

1.  Why  Study  the  Market? .148 

2.  Who  Comprise  the  Market? 148 


xiv         MARKETING  AND  MERCHANDISING 

8KCTI0N  PAGB 

3,  Men,  Women,  or  Children? 149 

4.  Influence  of  Class 150 

6.  Finding  the  Undeveloped  Market 151 

6.  City  and  Country  Markets 151 

7.  Size  of  the  Market .152 

8.  Limitation  of  the  Market 152 

9.  Opportunities  Abroad 153 

10.  Seeking  Unexploited  Fields 153 

11.  Buying  Seasons ,    154 

12.  Weather  as  a  Factor 155 

13.  Overcoming  a  Seasonal  Market     .      .      .      .      .156 

14.  When  Do  Buyers  Enter  the  Market?  ....    156 

15.  Business  Conditions  as  Business  Guides        .      .   156 

16.  How  Do  Consumers  Buy? 157 

17.  Customary  Sales  Channels  .      .      .      .      .      .      .158 

18.  Buying  Habit. 158 

19.  Consumption  Possibilities 159 

20.  How  Stable  Is  the  Market?     ......    159 

21.  Influence  of  Other  Markets 160 

22.  The  Problem  of  Competition 161 

23.  Relative  Strength  of  Competitors 162 

24.  Competitors'  Selling  Methods  .      .      .      .      .      .163 

25.  Building  a  Distinctive  Selling  Appeal     .      .      .163 

CHAPTER  XI 

FINDING  THE  SELLING  POINTS 

1.  How  Selling  Points  Are  Used 167 

2.  How  Selling  Points  Are  Found 167 

3.  History  as  a  Source  of  Selling  Points  .      .      .      .169 

4.  Raw  Materials   . .      .169 

5.  Conditions  of  Manufacture 170 

6.  Volume  of  Production 171 

7.  Reputation  of  Managers 171 

8.  Industrial  Relations      ........    171 


CONTENTS  XV 

SECTION  PAQS 

9.  Manufacturing   Policies 172 

10.  Financial   Policies    .........    172 

11.  Selling  Policies 173 

12.  What  Does  Product  Do  for  the  Consumer.?    .      .174 

13.  Appeal  to  the  Senses 175 

14.  Personal  and  Family  Pride   .         .      .      .      .      .176 

15.  Personal  and  Family  Welfare 177 

16.  Education 177 

17.  Convenience 177 

18.  Appeals  to  Comfort 178 

19.  Other  Welfare  Appeals 178 

20.  Ambition .      .      .179 

21.  Economy 179 

22.  The  Social  Appeal .    180 

23.  What  Does  the  Product  Do  for  Dealer.?  ...    180 

24.  Direct  and  Indirect  Appeals 181 

25.  Positive  and  Negative  Appeals 182 

26.  Selecting  the  Selling  Points 182 

27.  Value  of  Charts 183 


1. 

2. 

3. 

4. 

5. 

6. 

7. 

8. 

9. 
10. 
11. 
12. 


CHAPTER  XII 

REACHING  THE  MARKET 

Lack  of  Standards  in  Selling  .      .      .      ...      .186 

The  Part  Played  by  Judgment 186 

Plans  Must  Suit  Individual  Cases 187 

Trade  Channels 188 

How  Many  Channels  Shall  Be  Used.?  .      .      .      .189 

Influence  of  Custom 190 

Manufacturers'  Chain  Stores 190 

Selling  by  Mail  or  by  Salesmen   .      .      .      ..192 

Prices 193 

Selling  in  Bulk  or  in  Packages 194 

Trade-Marks  and  Cartons 194 

Place  of  Advertising  in  the  Campaign     .      .      .   196 


xvi         MARKETING  AND  MERCHANDISING 

8BCTI0N  '^^^ 

13.  Exclusive  Agency  Problems 196 

14.  Credit 196 

15.  Guarantees 197 

16.  Service 198 

17-     Charting  the  Cost  of  Marketing 199 

18.  Organizing  Salesmen  and  Advertising  ....  200 

19.  Team  Play ^    .  201 

20.  Distribution  and  Dealer  Cooperation  ....  202 

21.  Sales   Records 203 

CHAPTER  XIII 

TRADE-MARKS  AND  PACKAGES 


CONTENTS 


xvu 


1. 

Mm 
Am 

4. 
5. 

WW 

I  • 
O. 

•7* 

10. 
11. 
12. 

13. 
14. 
15. 
16. 

JL I  • 

18. 
19. 


Value  of  Trade-Marks  ........  205 

When  Technical  Advice  Is  Needed       ....  206 

What  Is  a  Trade-Mark.?     .      .      .      .      .      .      .  206 

Difference  Between  Trade-Marks  and  Patents     .  207 

Technical   Trade-Marks      .......  208 

Purpose  of  Trade-Mark  Statutes  .....  208 

Effect  of  Registration 209 

Registration  Not  Necessary  for  Protection   .      .  209 

General   Trade-Mark  Requirements    ....  210 

Approved  Kinds  of  Trade-Marks 211 

What  a  Trade-Mark  Should  Not  Be  .      •      .      .  212 
Difference     Between    Infringement     and     Unfair 

Competition 213 

When  Trade-Marks  Can  Be  Sold  .....  214 
Trade-Marks  of  Patented  Articles      .      .      .      .214 

Loss  of  Trade-Mark  Rights 215 

Trade-Names 215 

Packages 216 

Suitability  of  the  Package  . 216 

Individuality  of  the  Package 217 


CHAPTER  XIV 

EXCLUSIVE  AGENCIES 

SECTION  ^AQ% 

1.  Selective  Distribution 219 

2.  What  Is  an  Exclusive  Agency.? 219 

3.  Some  Legal  Questions  ........  220 

4.  Exclusive  Wholesale  Outlets 222 

6.     General   Wholesale   Distribution 222 

6.  Retail  Shopping  Lines 223 

7.  Influence  of  Size  of  Stock 224 

8.  Need  of  Special  Sales  Efl^ort 224 

9.  Need  of  Quick  Turnover .  224 

10.  Installation  and  Repair  Service 225 

11.  Exclusive  Agencies  and  Price  Control  ....  225 

12.  Value  of  Exclusive  Agency  for  New  Goods   .      .  226 

13.  Variations  in  Marketing  Procedure    ....  226 

14.  General  Dstribution  for  Convenience  Goods   .       .  227 
16.     Do  Exclusive  Agencies  Push  Sales?     ....  228 

16.  Why  Dealers  Like  Exclusive  Representation  .      .  229 

17.  When  General  Distribution  Is  Best  for  Retailers  .  230 

18.  Uncertain  Tenure  of  Exclusive  Agencies  .      .      .  232 

19.  The   Modern   Trend .233 

CHAPTER  XV 

THE  PRIVATE  BRAND  PROBLEM 

1.  Importance  of  the  Problem     .      .      .      .      .      .  234 

2.  Private  Brands  That  Harm  No  One  ....  235 

3.  Distributors  as  Manufacturers'  Competitors  .      .  236 

4.  Why   Manufacturers    Deal   with    Private    Brand 

Distributors 236 

6,     Manufacturers  Who  Make  Private  Brands   .      .  237 

6.  Are  Private  Brands  Unfair.?     ......  239 

7.  The  Cost  of  Private  Brands   .      .      .      .      .      .241 

8.  Private  Brands  and  Profits      .      .      .      .      .      .  242 


XVlll 

8SGTI0K 

10. 

11. 

12. 
13. 


MARKETING  AND  MERCHANDISING 


PAGE 


1 

M.m 

2. 

&m 

fC 
■•#• 

II* 

I  • 

o« 

d 

IF* 

10. 
11. 
12. 
13. 
14. 
15. 
16. 

19. 


8. 


The  Question  of  Quality 243 

Private  Brands  Mean  More  Customers     .      .      .   243 
Jobber  Wants  to  Control  His  Market  .      .      .      .243 

The  Retailer's  Attitude 244 

Should  All  Goods  Bear  Manufacturers'  Names  ?  .  245 


CHAPTER  XVI 

NATIONAL  ADVERTISING  AND  THE  DEALER 


/ 


Manufacturers'  Interests  in  Advertising 
Dealers'  Interests  in  Advertising  . 
What  Is  National  Advertising?    . 
Meaning  of  Brand  Consciousness  . 
Building  Favorable  Public  Opinion 
When  Consumers  Buy  by  Brand  . 
Word-of-Mouth   Advertising    . 
Why  the  Manufacturer  Advertises 
Is  There  a  Limit  to  Advertising  Possibilities  ? 
What  Advertised  Goods  Do  for  the  Dealer 

Advertising  and  Quality 256' 

What  the  Opposition  Says 257 

Effect  on  Sales  Volume 257 

Lowered  Selling  Cost 258 

Quicker  Sales  and  More  Turnover 259 

The  Question  of  Profits 260 

Present  Attitude  Toward  National  Advertising  .   261 

Consumer  Demand 261 

Consumer  Acceptance   .      .      .      •      •      •      •      •   262 


248 
249 
249 
250 
251 
251 
252 
253 
254 
255 


CHAPTER  XVII 

PRICE  POLICIES 


i 


Importance  of  Right  Prices 265 

Influence  of  Cost  of  Production 265 

Effect  of  Selling  Costs 266 

Size  of  the  Profit •      •      -266 


CONTENTS  xix 

SBCTION  PAGE 

6.  ^^AU  the  Traffic  Will  Bear"     ......  267 

6.  Influence  of   Competition 268 

7.  Advantage  of  Definite  Prices 268 

8.  Jobbers',  Retailers',  and  Consumers'  Prices   .      .  269 
9-  Quantity    Priqes 270 

10.  Gross  and  Net  Prices 272 

11.  Price   Maintenance 273 

12.  Legal  Status  of  Price  Maintenance     ....  274 

13.  Why    Manufacturers    Want    to    Control    Resale 

Prices 274 

14.  Who  Could  Use  Price  Maintenance.?   ....    275 

15.  The  Consumer's  Interest     .......    276' 

16.  Are  Maintained  Prices  High  Prices.?  ....    277 

17.  Question  of  Fairness  to  Dealers 278 

18.  Price  Maintenance  and  Restraint  of  Trade  .      .    279 

19.  Difference  Between  Price  Maintenance  and  Con- 

spiracy Prices 280 

20.  Does  Price  M^aintenance  Encourage  Monopoly    .    282 
21*     Price  Maintenance  Illustrated  .       .       .       .       .       .    283 

22.  How  Price  Maintenance  Encourages  Competition  284 

23.  Nature  of  the  Price  Maintenance  Agreement  .      .    285 


CHAPTER  XVIII 

DISTRIBUTION  AND  DEALER  COOPERATION 

1.  Getting  Distribution .   287 

2.  Getting  Cooperation 287 

3.  Advertising  or  Salesmen 288 

4.  Paving  the  Way  for  Salesmen 288 

5.  Distribution  in  Isolated  Communities  ....    289 

6.  Selling  the  Entire  Line  .      .      .      .      . '    .      .      .290 

7.  Keeping  the  Territory  Covered 291 

8.  Distribution  Thru  Branches    .      .      .      .      .      .292 

9.  Missionary    Salesmen 293 

10.  Distribution  and  Advertising  .....   293 


MARKETING  AND  MERCHANDISING 

SECTION  ^^^® 

11.  The  Intensive  Campaign 294? 

12.  Problem  of  Cooperation 295 

13.  Help  in  Selling 296 

14.  Education   and   Cooperation 296 

15.  Working  with  the  Salespeople 297 

16*     Indirect    Service      .      .      .      .      ...      .      .  297 

17.  How    Advertising    Helps 298 

18.  Advertising  for  the  Dealer 298 

19.  Advertising  Thru  the  Dealer 298 

20.  Allocation  of  Expense .  299 

CHAPTER  XIX 

RETAIL  STORE  PROBLEMS 

1.  The  Retailer's  Special  Interests 301 

2.  Choosing  a  Community 301 

3.  Selecting  a  Location 302 

4.  Influence  of  Location   ........  304 

5.  Analyzing  a  Retail  Market 304 

6.  Purposes  of  Market  Analysis 304 

7.  Extending  the  Retail  Field 305 

8.  Applying  the  Results  of  Analysis 306 

9.  Retail   Service 307 

10.  Value  of  Fixed  Policies 308 

11.  Advertising  Policy   .........  308 

12.  Price   Policy 309 

13.  Money-Back  Policy 310 

14.  Adjustment  Policy 311 

15.  Store   Individuality 311 

CHAPTER  XX 

TURNOVER,  MARK-UP,  AND  PROFIT 


CONTENTS  xxi 

SECTION     .  PAGE 

3.  Methods  of  Figuring  Turnover 315 

4.  Value  of  Stock  Control 317 

5.  What  Is  Profit? .  317 

6.  Factors  in  Selling  Prices 318 

7.  Mark-Up 319 

8.  Importance  of  a  Common  Base 319 

9.  Benefits  of  Using  Selling  Price  as  the  Base     .      .  321 
10.     How  Mark-Up  Is  Figured 322 


CHAPTER  XXI 

BUYING  AND  MERCHANDISE  MANAGEMENT      V 

Relation  of  Buying  and  Selling 326 

How  Much  to  Buy 326 

Evils  of  Over-Buying 327 

Differences  in  Turnover  Possibilities   ....  328 

Turnover  and  Quantity  Prices 329 

May  Turnover  Be  Excessive? 329 

Buying  Seasonal  Products 330 

Why  Advance  Orders  Are  Necessary  ....  330 

Results  of  Withholding  Advance  Orders  .      .      .  332 

How  to  Increase  Turnover 334 

Buying  by  Quotas 335 

The    Merchandise   Department 335 

Control  of  Merchandise  Profits 336 


If. 

Mm 

5. 
6. 

II* 

if* 

10. 
11. 
12. 
13. 


1.  What  Is  Turnover?  . 

2.  Two  Kinds  of  Turnover 


1. 

2. 

y 

3. 
4. 

314 

5. 

315 

6. 

CHAPTER  XXII 

THE  COST  OF  COMPETITIVE  SELLING 

Manufacturing  Costs  and  Selling  Costs  .  .  .  339 
The  Rise  of  Public  Interest  in  Selling  ....  340 
Reasons  for  High  Selling  Expense    ....    340 

Need  of  Reductions .      .   341 

How  Reductions  May  Be  Made 342 

More  Economical  Sales  Channels 342 


I 


xxii  MARKETING  AND  MERCHANDISING 

SBCTION  PAOI 

7.  Standardization 343 

8.  Increased  Turnover .     ;.  343 

9.  Elimination  of  Unnecessary  Service  ....  343 

10.  Better   Planning .  344 

11.  Need  of  More  Effective  Sales  Managemtot   .      .  344 

12.  The  Seller's  Responsibility 345 

13.  Is  Competition  an  Evil? 345 

14.  Two  Kinds  of  Criticism 346 

15.  Identical   Effects    of   Advertising   and    Peri^onal 

Selling 347 

16.  Influence  of  Intensive  Selling  on  Retail  Prices     .  347 

17.  Efl^ect  of  the  Manufacturer's  Activities   .      .      .  348 

18.  Intensive  Selling  Reduces  the  Unit  Cost  to  Sell  .  349 

19.  Who  Pays  for  the  Advertising? 349 

20.  The  Socialist's  Point  of  View 350 

21.  Competition  and  CiviHzation 351 

22.  Facing  the  Facts 352 

23.  Conclusion ,      .      •      .  352 


MARKETING  AND 
MERCHANDISING 


CHAPTER  I 

THE  FIELD  OF  MARKETING  AND  MERCHANDISING 

1.  Two  methods  of  selling. — There  are  only  two 
ways  in  which  anything  can  be  sold — by  personal 
salesmanship  and  by  advertising.  In  business,  per- 
sonal salesmanship  is  the  attempt  to  promote  the  sale 
of  goods  or  services  by  the  direct  solicitation  of  one 
buying  unit  or  one  individual  at  a  time.  Advertising 
is  the  attempt  to  promote  sales  by  the  solicitation  of 
more  than  one  buying  unit  or  more  than  one  individual 
at  a  time.  Personal  salesmanship  seeks  to  influence 
the  individual ;  advertising  endeavors  to  influence  the 
mass.  While  for  purposes  of  definition  it  may  be 
well  to  make  a  sharp  contrast  between  personal  sales- 
manship and  advertising  it  is  not  to  be  understood 
that  in  practical  business  life  they  are  in  any  sense 
opposed.  They  are  in  fact  coordinate  and  comple- 
mentary forces. 

2.  The  basis  of  sales  policies.— Aliho  personal 
salesmanship  and  advertising  are  the  only  two  pos- 
sible methods  of  appealing  to  the  market,  they  are 


It 


2  MARKETING  AND  MERCHANDISING 

by  no  means  the  only  things  that  must  be  considered 
by  the  manufacturer  or  dealer  who  has  something  to 
sell.  Of  more  importance  than  any  expression  of 
the  selhng  idea  is  the  selling  idea  itself — in  other 
words,  the  plan  behind  the  selling.  Back  of  the  ef- 
fective selling  talk  of  the  salesmen  and  back  of  the 
vigorous  message  of  the  advertisements  there  is  a 
world  of  plfuining,  study,  and  thought  without  which 
the  attempt  to  sell  in  any  manner  could  never  be 
successful  and,  in  fact,  could  not  even  start.  Before 
a  salesman  has  been  hired  or  before  an  advertise- 
ment has  been  written,  the  promoter  of  the  business 
must  have  evolved  a  selling  policy — he  must  have 

* 

solved  a  hundred  difficult  problems  upon  which  de- 
pend his  selection  of  advertising  or  personal  sales- 
manship, or  both,  as  suitable  marketing  tools,  his 
selection  of  trade  channels,  and  his  decision  to  use 
established  methods  of  reaching  the  market  or  to  hew 
out  some  new  road  between  distributor  and  con- 
sumer. 

3.  The  meaning  of  marketing  and  merchandis- 
ing.— Other  Texts  in  the  Modern  Business  Course 
treat  of  personal  salesmanship  and  of  advertising. 
In  this  Text  we  are  concerned  with  the  plan  behind 
both  salesmanship  and  advertising.  Marketing 
means  selling.  Merchandising  means  buying  and 
selling.  In  the  larger  sense  these  two  terms  include 
every  activity  in  the  field  of  distribution.  In  a  nar- 
rower sense,  and  the  sense  in  which  they  are  most 
frequently  used,  they  exclude  the  technique  of  sales- 


MARKETING  AND  MERCHANDISING 


3 


manship  and  of  advertising,  and  include  those  con- 
siderations of  plan  and  purpose  upon  which  any 
successful  selling  policy  must  be  founded.  It  is  in 
this  narrower  and  customary  sense  that  the  words 
marketing  and  merchandising  are  used  in  this  Text. 
Marketing  and  merchandising  have  to  do  with  sell- 
ing policy  rather  than  selling  technique.  They  are 
concerned  with  strategy  and  planning,  rather  than 
with  the  actual  conduct  of  sales  operations.  It  is  with 
the  plans  that  must  precede  all  sales  operations  that 
the  Text  deals.  It  will  be  noted  further  that  our 
treatment  will  deal  with  the  marketing  and  merchan- 
dising of  manufactured  products.  The  marketing 
of  raw  materials  involves  a  different  organization 
and  a  different  machinery. 

4.  The  place  of  marketing  in  business. — A  study 
of  the  pi-inciples  that  govern  all  selling  plans  for 
manufactured  goods  is  important  to  every  one  in 
business.  Its  value  to  those  directly  concerned  with 
sales  is  obvious.  To  the  worker  in  the  field  of  pro- 
duction, such  a  study  gives  a  new  insight  into  the 
tremendous  problems  involved  in  the  distribution  of 
the  world's  goods,  and  it  enables  him  to  cooperate 
most  effectively  with  those  who  sell  the  goods  he 
makes.  To  the  worker  in  the  field  of  accounting,  a 
study  of  marketing  and  merchandising  is  helpful  in 
aiding  him  to  place  himself  in  intelligent  contact 
with  one  of  the  two  most  important  phases  of  busi- 
ness  activity.  To  the  financial  man,  such  a  study 
opens  the  door  to  sympathetic  understanding  of  the 


4  MARKETING  AND  MERCHANDISING 

purposes  and  requirements  of  the  distributing  sys- 
tem, and  its  relation  to  the  income  and  outgo,  and 
hence  the  financial  requirements  of  the  enterprise. 
To  all  business  men,  regardless  of  their  specific  work, 
a  study  of  marketing  and  merchandising  is  essential 
if  they  are  to  aspire  to,  or  to  administer  effectively, 
executive  responsibilities  which  demand  familiarity 
with  all  the  important  functions  which  together  form 
the  great  structure  of  modern  business. 

5.  Difference  between  marketing  and  merchan- 
dising.— The  word  marketing  is  commonly  used  in 
connection  with  the  fundamental  sales  problems  of 
the  manufacturer.  Merchandising,  on  the  other 
hand,  is  usually  restricted  in  its  meaning  to  the  prob- 
lems of  the  dealer — ^the  man  who  both  buys  and  sells. 
Any  usage  of  the  two  terms  at  present  is  largely  ar- 
bitrary, because  regardless  of  dictionary  definitions 
their  meanings  are  not  firmly  fixed  in  actual  business 
practice.  The  wholesale  distributor,  for  instance, 
has  many  problems  of  sales  policy  in  common  with 
the  manufacturer,  but  he  has  many  also  in  common 
with  the  retailer.  We  may  think  of  his  problems 
as  those  of  marketing  or  of  merchandising,  in  accord- 
ance with  our  definitions  of  the  two  words.  It  is 
not  wise  to  attempt  to  define  too  closely  words  which 
have  only  recently  come  into  frequent  business  use, 
and  which  may  mean  tomorrow  something  other  than 
what  they  mean  today.  Accordingly  both  market- 
ing  and  merchandising  are  used  in  the  title  of  this 
Text,  without  intent  definitely  to  differentiate  be- 


L 


MARKETING  AND  MERCHANDISING  5 

tween  them.  The  use  of  the  words  merely  indicates 
that  our  present  concern  is  not  with  those  things  that 
are  properly  considered  separately  under  the  heads  of 
personal  salesmanship  and  of  advertising,  but  rather 
with  those  selling  principles  that  provide  the  basis 
for  policies  on  which  both  salesmanship  and  advertis- 
ing must  rest. 

6.  Marketing  factors. — The  Text  deals  first  with 
the  factors  in  marketing — ^that  is,  the  channels  that 
are  available  for  the  distribution  of  manufactured 
goods.  It  describes  the  traditional  marketing  chan- 
nels, wholesalers,  jobbers,  and  the  older  forms  of  re- 
tail establishments,  analyzes  their  points  of  competi- 
tive strength  and  weakness,  indicates  their  impor- 
tance as  manufacturers'  outlets,  and  presents  the 
many  problems  arising  from  the  rapid  changes  that 
characterize  the  modern  world  of  selling.  It  then 
discusses  special  distributing  factors,  such  as  agents, 
commission  merchants,  and  brokers,  and  sketches  the 
rise  and  significance  of  mail-order  houses,  chain 
stores,  and  cooperative  buying  groups  both  in  the 
wholesale  and  the  retail  fields.  The  purpose  of  this 
part  of  the  Text  is  to  provide  a  background  of  in- 
formation regarding  available  marketing  channels, 
as  a  basis  for  the  later  discussion  of  specific  problems 
of  distribution,  the  solution  of  which  must  always  be 
based  on  a  clear  and  complete  understanding  of  the 
existing  machinery  of  distribution. 

7.  Wholesale  marketing  and  merchandising. — The 
Text  treats  next  of  the  principles  of  wholesale  mar- 


I.^'. 


I'*" 

ill' 

i 


6  MARKETING  AND  MERCHANDISING 

keting  and  merchandising.  The  point  of  view  is 
chiefly  that  of  the  manufacturer  or  jobber  who  sells 
to  the  retail  dealer.  Many  of  the  matters  discussed, 
however,  are  as  pertinent  to  the  retailer  as  they  are 
to  the  manufacturer  or  wholesaler;  accordingly  the 
retailer's  side  of  every  problem  is  presented  together 
with  that  of  those  who  supply  him  with  goods.  In 
this  section  of  the  Text  there  is  a  complete  outline 
of  points  to  be  covered  in  the  study  of  the  product 
and  of  the  market  which  must  form  the  basis  for  any 
well  considered  selling  plan.  The  application  of 
such  a  study  is  then  shown  in  the  development  of  a 
carefully  rounded  policy  of  distribution.  Of  the 
various  steps  in  the  development  of  the  sales  plan 
there  will  be  a  full  consideration  of  such  important 
phases  as  finding  the  selling  points,  the  creation  of 
trade  names,  trade-marks,  and  packages,  selling  thru 
exclusive  agencies,  the  private  brand  problem,  na- 
tional  advertising  with  its  effect  on  trade  relations, 
price  policies  and  price  maintenance. 

8.  Retail  merchandising. — Finally,  a  group  of 
chapters  deals  with  merchandising  problems  directly 
relating  to  the  activities  of  those  who  sell  to  consumers. 
The  direct-selling  manufacturer  receives  attention  in 
a  chapter  on  specialty  selling,  while  the  retail  mer- 
chant will  find  a  discussion  of  specific  problems  of 
his  business  in  sections  and  chapters  on  store  location, 
on  selecting  and  reaching  the  market,  on  buying  and 
merchandise  management,  on  mark-up,  turnover,  and 
profits,  and  on  store  service  and  store  policies. 


MARKETING  AND  MERCHANDISING  7 

9.  Common  interests  of  all  trade  factors. — Altho 
the  Text  treats  in  different  sections  of  the  slightly 
differing  problems  of  manufacturers,  wholesalers, 
and  retailers,  it  is  neither  possible  nor  advisable  to 
draw  any  lines  and  to  say,  for  instance,  that  here  the 
manufacturer's  marketing  interests  end,  and  here  the 
retailer's  begin.  There  are  few  manufacturer's 
marketing  problems  which  do  not  affect  both  whole- 
saler and  retailer ;  they  would  not  be  problems  if  the 
interests  of  distributors  were  not  vitally  involved. 
There  are  few  wholesaler's  merchandising  problems 
which  are  not  brought  into  existence  by  the  influence 
of  the  manufacturer's  interests  on  the  one  hand  and 
of  the  retailer's  on  the  other.  And  obviously  no  one 
who  makes  goods  for  the  retailer  to  sell  or  who  sells 
them  to  him  can  fail  to  be  aware  that  his  own  busi- 
ness existence  is  dependent  upon  the  successful  oper- 
ation of  our  great  retail  merchandising  system.  Mar- 
keting and  merchandising  as  a  field  for  study  does  not 
consist  of  specialized  practices  for  specialized  trade 
interests;  it  consists  of  a  single  body  of  principles, 
of  equal  and  common  interest  to  all  who  make  or 
market  the  world's  goods. 

REVIEW 

Wherein  do  personal  salesmanship  and  advertising  differ  and 
wherein  do  they  agree? 

What  is  meant  by  sales  policies?     *" 

Discuss  the  terms  marketing  and  merchandising. 

How  may  the  principles  which  govern  the  sale  of  manufac- 
tured goods  be  helpful  to  (a)  the  production  man,  (b)  the 
accountant,  (c)  the  financial  man,  (d)  business  men  generally? 


MARKETING  CHANNELS 


f* 


CHAPTER  II 

MARKETING  CHANNELS— PAST  AND  PRESENT 

1.  Trade  cAatineZ^.— Marketing  channels  or  trade 
channels  are  the  routes  along  which  goods  pass  on 
their  way  from  the  manufacturer  to  the  final  con- 
sumer. If  the  route  is  direct  and  without  branches 
and  intersections,  we  have  the  manufacturer-direct- 
to-consumer  selling  method.  If  there  are  several 
routes  leading  from  the  production  center,  and  if 
each  of  these  direct  routes  branches  off  at  some  dis- 
tributing point  where  new  routes  radiate  out  to  the 
final  markets,  we  have  the  manufacturer-retailer-con- 
sumer method,  or  the  manufacturer-agent-consumer 
method,  or  some  other  similar  selling  system  that 
uses  only  one  class  of  middlemen.  If  the  branch 
routes,  each  in  turn,  come  to  smaller  distributing 
centers  where  new  routes  reach  out  to  the  consumers, 
we  have  a  system  involving  two  different  kinds  of 
middlemen— possibly  the  manufacturer- j  obber-re- 
tailer-consumer  selling  method. 

2.  The  influence  of  tradition  and  competition. — In 
an  eariier  day  trade ''channels  were  pretty  definitely 
established;  the  problem  of  finding  thfe  physical 
means  to  distribute  goods  was  easily  solved.  Each 
manufacturer  had  but  to  adopt  the  usual  trade  chan- 

8 


nels  in  his  industry.  Today  all  this  is  changed. 
There  is  little  respect  for  traditional  methods  as  such. 
Every  manufacturer  and  every  distributor  seeks  the 
largest  possible  market  at  the  least  possible  cost,  and 
he  consciously  selects  the  trade  channels  and  the  sell- 
ing methods  that  are  best  suited  to  his  particular 
case,  without  regard  to  prevailing  customs  unless  he 
deems  them  expedient  or  profitable.  Intense  com- 
petition makes  it  necessary  for  the  man  who  has  some- 
thing to  sell  to  cultivate  relatively  unimportant 
markets  that  he  would  have  disdained  in  the  old  days, 
to  regard  with  desire  every  profit  that  goes  into  the 
pocket  of  any  one  who  stands  between  him  and  the 
consumer,  and  to  submit  to  searching  analysis  every 
link  in  the  chain  of  distribution  so  that  he  may  have 
the  maximum  advantage  over  his  competitors  in 
price,  in  service,  and  in  profits. 

3.  Selling  direct  to  consumer. — The  oldest  and 
simplest  distributing  system  is  from  manufacturer 
•direct  to  consumer.  For  the  purpose  of  this  discus- 
sion a  manufacturer  is  one  who  expends  labor  upon 
raw  materials  or  upon  already  manufactured  parts 
so  as  to  change  them  into  something  different  in  form 
or  use.  A  consumer  is  one  who  destroys  the  ex- 
changeable value  of  a  commodity  by  using  it — that 
is,  he  buys  goods  for  consumption  and  not  to  sell 
them  again.  Manufacturers  and  consumers  were  the 
only  trade  factors  in  these  simple  days  when  business 
was  young.  Since  those  times  infinite  complications 
have  developed  in  our  distributing  machinery,  but 


10 


MARKETING  AND  MERCHANDISING 


MARKETING  CHANNELS 


11 


'  ' 


today,  as  then,  the  direct  contact  of  manufacturers 
and  consumers  is  a  vital  fact  in  marketing.  Thou- 
sands of  manufacturers  use  this  method  of  selling  be- 
cause no  other  method  so  well  suits  their  purposes. 
Some  idealists  contend  that  direct  selling  is  the  only 
economic  method.  Altho  the  facts  of  our  complicated 
life  disprove  this  contention,  it  remains  true  that  di- 
rect selling  in  many  instances  has  sufficient  advan- 
tages to  require  every  manufacturer  to  consider  this 
as  one  of  the  possible  methods  of  distributing  his 
goods. 

4.  The  canvasser's  opportunity. — Manufacturers 
sell  to  consumers  by  personal  salesmen  or  by  mail. 
If  salesmen  are  used,  they  may  be  either  canvassers 
or  specialty  salesmen.  The  differenee  is  one  of  de- 
gree  and  not  of  method.  The  persistent  solicitor  for 
a  "History  of  the  World  War"  is  justified  by  the 
same  commercial  necessity  that  dictates  the  employ- 
ment of  the  highly  paid  commercial  ambassador  who 
sells  fifty  thousand  dollars  worth  of  supplies  to  a. 
railroad.  Manufacturers  often  use  canvassers  be- 
cause the  nature  of  the  thing  to  be  sold  demands  it. 
When  aluminum  cooking  utensils  were  fi«t  intro- 
duced, probably  no  other  method  would  have  been 
so  successful  as  house-to-house  solicitation  in  indue- 
ing  housewives  to  try  out  the  new  material.  Selling 
by  means  of  personal  solicitation  of  the  consumer  is 
appropriate  when  an  article  is  so  little  known  that  its 
merits  must  be  presented  personally  to  each  pros- 
pective  customer,  and  when  dealers  and  advertising 


can  not  be  relied  upon  alone  to  create  a  demand. 

When  actual  necessity  does  not  require  the  use  of 
canvassers,  expediency  sometimes  suggests  their  use. 
Established  retail  channels  may  be  loath  to  take  on  a 
new  line  that  competes  with  goods  already  in  stock; 
sales  thru  retail  stores  may  be  too  small  to  permit 
large  scale  production;  in  some  cases  sales  thru  can- 
vassers may  yield  a  larger  net  return  to  the  manufac- 
turer than  sales  thru  retail  stores.  Publishers  of 
books  and  maps,  and  manufacturers  of  kitchen  uten- 
sils, brushes,  and  a  great  variety  of  other  goods  have 
for  years  done  an  immense  business  thru  house-to- 
house  solicitors.  At  one  time  it  might  have  been  said 
that  the  possibilities  of  this  type  of  selling  were  lim- 
ited. Certainly  there  has  been  a  popular  prejudice 
against  the  methods  of  some  canvassers  which  at  times 
limits  their  usefulness.  The  recent  application  of 
modern  methods  of  sales  management,  however,  to 
this  ancient  sj^stem  of  selling  has  shown  the  great  op- 
portunities for  the  progressive  manufacturer  even  in 
a  field  that  for  many  years  was  considered  too  barren 
to  justify  serious  cultivation. 

5.  When  the  specialty  salesman  is  used. — A  spec- 
ialty salesman,  going  direct  from  the  manufacturer 
to  the  consumer,  usually  handles  a  line  so  technical 
or  complicated  that  it  must  be  carefully  explained 
before  the  consumer  will  buy  it.  An  example  is  the 
cash  register  salesman.  He  has  first  to  prove  to  the 
prospective  purchaser  that  a  cash  register  is  neces- 
sary in  the  "prospect's"  business,  and  then  he  may 


:  # 


12         MARKETING  AND  MERCHANDISING 


MARKETING  CHANNELS 


13 


I 


have  to  prove  that  his  machine  is  preferable  to  any 
other.  The  problem  of  the  life  insurance  salesman 
is  similar.  Sometimes  when  the  market  is  compara- 
tively thin  and  the  competition  is  severe,  the  use  of 
specialty  salesmen  is  continued  long  after  the  public 
has  become  perfectly  familiar  with  the  article.  The 
typewriter  business  illustrates  this  condition. 

In  many  instances  no  other  seUing  method  is  pos- 
sible than  the  direct  contact  with  consumers  by  the 
use  of  salesmen.  Locomotives  could  not  be  sold  in  a 
retail  store  or  by  maiL  Probably  life  insurance  must 
always  be  sold  chiefly  by  solicitors,  altho  advertising 
can  unquestionably  do  much  to  supplement  the  work 
of  the  salesman  in  this  as  in  other  fields.  Speaking 
generally,  very  high-priced  articles  can  often  be  sold 
more  successfully  and  economically  by  personal  solici- 
tation than  by  any  other  method.  In  the  case  of 
low-priced  articles  the  method  is  undoubtedly  expen- 
sive, and  is  recommended  only  when  the  nature  of 
the  goods  or  competitive  conditions  clearly  demand 
it  or  when  the  most  skilful  sales  management  can  be 
relied  on  to  reduce  selling  cost  to  a  minimum  and  to 
solve  the  intricate  problems  of  handling  a  nation- 
wide force  of  house-to-house  solicitors. 

6.  Direct  selling  by  mail. — Selling  direct  to  the 
consumer  by  mail  was  one  of  the  first  developments 
of  modern  advertising.  It  has  grown  in  dignity  and 
power  until  it  has  become  one  of  the  most  potent 
methods  of  marketing.  It  is  used  to  sell  everything 
from  a  threshing  machine  to  a  one-cent  picture  post- 


card. No  one  with  wisdom  would  attempt  to  lay 
down  absolute  principles  to  govern  its  application  to 
this  or  to  that  class  of  commodities.  And  vet  a  few 
broad  generalities  will  be  found  usually  applicable. 
Normally  this  is  not  an  inexpensive  method  of  sell- 
ing ;  if  a  single  article  is  sold  bj^  mail,  there  must  usu- 
ally be  a  considerable  gross  margin  of  profit.  If  a 
manufacturer  seeks  anything  approximating  univer- 
sal use  of  his  product,  he  would  hardly  try  to  reach 
twenty  million  families  by  mail.  It  is  not  conceiv- 
able, for  example,  that  a  ten-cent  package  of  break- 
fast food  could  be  firmly  fixed  in  national  favor  if 
sold  exclusively  to  consumers  by  mail.  On  the  other 
hand,  we  know  that  when  many  articles  are  sold  thru 
one  catalog,  the  cost  of  selling  is  sometimes  lower 
than  in  any  other  method  of  distribution;  and  we 
know  too  that  when  the  market  is  limited,  a  carefully 
planned,  intensive  direct-by-mail  campaign  is  often 
the  cheapest  and  most  effective  method  of  appeal. 
It  is  obviously  dangerous  to  generalize  about  the 
mail-order  business.     As  a  valuable  force  in  market- 

* 

ing  it  is  too  new  and  too  vigorous  to  permit  the  set- 
ting of  bounds  to  its  possible  use  and  growth. 

7.  Importance  of  the  retail  distributor. — ^When  a 
manufacturer  does  not  go  direct  to  the  consumer,  his 
customary  intermediary  is  the  retailer.  The  term 
retailer  is  derived  from  two  words  meaning  "to  cut 
again."  It  was  originally  appUed  to  a  class  of  mid- 
dlemen who  purchased  cloth  by  the  piece  or  in  quan- 
tities and  then  cut  off  smaller  amounts  for  sale 


HI 


'» 


14         MARKETING  AND  MERCHANDISING 

to  consumers.  Speaking  generally,  the  modern  re- 
tailer is  a  distributor  who  buys  goods  to  sell  them 
again  to  buyers  who  are  not  themselves  dealers.  His 
usual  customer  is  the  consumer.  The  distribution  of 
goods  at  retail  is  the  largest  business  in  the  world. 
There  are  close  to  a  miUion  retail  stores  in  the  United 
States  alone.  Their  activities  affect  all  of  us.  As 
consumers,  most  of  our  earnings  go  to  them.  The 
jobber's  business  life  depends  on  the  success  of  his 
retail  patrons,  "the  manufacturer  in  countless  cases 
finds  his  ultimate  market  thru  retail  stores ;  and  one 
of  his  greatest  problems  is  to  cooperate  with  the  re- 
tailer to  the  end  that  both  may  give  better  service, 
sell  more  goods,  and  make  more  profits. 

The  choice  of  the  retail  store  as  an  outlet  for  the 
manufacturer,  rather  than  direct  contact  with  con- 
sumers, may  be  due  to  expanding  business  without 
the  amount  of  capital  necessary  to  send  canvassers 
broadcast  over  the  country.  It  may  be  due  to  the 
nature  of  the  product  or  the  market,  which  makes 
direct  selling  inexpedient.  It  may  also  be  due  to  a 
lack  of  familiarity  with  direct  selling  practices  or  a 
distaste  for  the  difficulties  involved  in  that  selling, 
method.  More  often,  however,  it  is  due  to  the  desire 
of  the  manufacturer  to  build  up  a  more  intensive  dis- 
tribution than  can  be  obtained  by  direct  selling. 

8.  Types  of  retailers. — The  manufacturer  who 
elects  to  sell  thru  the  retailer  can  choose  from  among 
several  types  of  retail  establishments.  The  best 
known  is  the  specialty  store — ^the  store  that  deals  in 


MARKETING  CHANNELS 


16 


only  one  kind  of  goods  or  in  a  few  more  or  less  closely 
allied  lines.  This  is  the  historical  type  of  retailer. 
Concurrent  with  the  development  of  the  specialty 
store  in  this  country  has  been  that  of  the  general 
store — a  natural  growth  in  a  sparsely  settled  country 
where  trading  centers  were  too  small  to  support  spec- 
ialty shops  in  all  lines.  The  city  prototype  of  the 
country  general  store  is  the  department  store,  prob- 
ably first  appearing  in  France,  but  now  found  thru- 
out  the  world.  Its  rapid  growth,  its  problems,  and 
its  possibilities  have  been  potent  in  breaking  down  old 
trade  walls  and  in  changing  the  general  marketing 
situation.  The  two  newest  types  of  retail  stores  are 
chain  stores  and  mail-order  houses.  From  the  days 
when  the  Great  Atlantic  &  Pacific  Tea  Company 
first  showed  the  possibilities  of  a  nation-wide  chain  of 
stores,  there  has  been  tremendous  development  of 
the  chain-store  principle,  until  today  the  rapid 
growth  of  the  chains  is  the  outstanding  fact  in  re- 
tail merchandising. 

The  great  mail-order  houses  are  even  younger  than 
the  older  of  the  chains.  As  outlets  for  millions  of 
dollars  worth  of  manufacturers'  goods,  distributing 
chiefly  into  rural  neighborhoods,  their  significance  in 
our  marketing  system  may  be  measured  by  the  contro- 
versies that  have  raged  around  them.  Altho  some 
country  merchant  would  dispute  the  statement, 
many  people  believe  the  mail-order  houses  have  had 
a  beneficial  effect  on  rural  life.  Their  influence  has 
been  felt  by  manufacturers,  jobbers,  and  retailers 


16 


MARKETING  AND  MERCHANDISING 


MARKETING  CHANNELS 


17 


alike,  and  they  have  pioneered  in  a  field  of  selling 
that  is  now  proving  attractive  and  profitable  to  thou- 
sands of  manufacturers  and  distributors. 

9.  The  jobber's  place. — When  a  manufacturer 
finds  it  difficult  or  inexpedient  to  attempt  to  reach  the 
retail  store  direct,  he  usually  adds  the  jobber  to  his 
chain  of  distribution.  A  jobber  or  wholesaler  is  one 
who  buys,  usually  in  quantities,  for  the  purpose  of 
selling  the  same  goods  without  alteration,  to  other 
dealers.  These  other  dealers  may  be  either  other  job- 
bers or  retailers.  Of  course  some  jobbers  also  manu- 
facture and  some  also  sell  to  consumers.  When  they 
do  this,  so  far  as  those  transactions  are  concerned,  they 
are  manufacturers  or  retailers,  and  not  jobbers.  For- 
merly there  was  a  distinction  between  a  jobber  and  a 
wholesaler,  but  it  seldom  exists  today.  In  most  lines 
of  trade  the  words  jobber  and  wholesaler  are  em- 
ployed  interchangeably. 

The  importance  of  the  jobber  to  the  manufacturer 
will  be  pointed  out  in  a  later  chapter.  The  manufac- 
turer whose  products  are  bought  in  relatively  small 
units  by  large  numbers  of  widely  scattered  retailers, 
frequently  finds  it  necessary  to  use  the  jobber  instead 
of  firoiner  direct  to  the  retailer.  Jobbers  distribute  the 
majority  of  all  the  merchandise  in  such  great  staple 
lines  as  hardware,  groceries,  dry-goods,  and  drugs. 

Allied  to  the  jobber,  and  usually  performing  simi- 
lar functions,  are  a  considerable  group  of  diflFerent 
kinds  of  middlemen,  known  variously  as  agents,  com- 
mission  merchants,    and    brokers.     Their    activities 


may  be  retail,  but  they  are  usually  wholesalers.  In 
some  industries  they  occupy  very  strong  positions,  al- 
tho  the  modern  trend  toward  shortening  the  chain  of 
distribution  has  in  some  instances  lessened  their  influ- 
ence, as  it  has  to  varying  degrees  lessened  the  influ- 
ence of  other  classes  of  wholesale  distributors. 

10.  The  old  chain  of  distribution. — For  many  years 
many  manufactured  products  passed  thru  a  series  of 
trade  channels  consisting  of  six  stages :  ( 1 )  manufac- 
turer, (2)  commission  merchant,  (3)  jobber,  (4) 
wholesaler,  (5)  retailer,  (6)  consumer.  This  tradi- 
tional chain  of  distribution  is  not  unknown  today.  In 
some  of  the  textile  trades,  for  instance,  we  still  find 
these  links  in  the  chain  and  many  more  besides. 
This  condition  is  not  typical  of  modern  marketing. 
Many  circumstances  have  operated  to  obviate  the 
former  necessity  for  a  long  string  of  middlemen.  Ad- 
vertising has  brought  the  manufacturer  and  consumer 
closer  together;  increased  consumer  demand  for 
fresh  styles  has  necessitated  the  shortening  of  the 
chain;  quickened  methods  of  transportation  have 
made  unnecessary  the  long  graduated  series  of  ware- 
housemen formerly  needed  to  give  the  consumer  the 
goods  when  he  wanted  them. 

11,  The  modern  chain. — There  is  no  typical  chain 
of  modern  distribution.  Almost  every  industry  has 
its  own  system  of  middlemen,  and  often  the  different 
units  in  the  same  industry  vary  widely  in  their 
methods  of  reaching  the  market.  For  example, 
shoes  are  sold  in  large  quantities  thru  chains  of  stores 


18         MARKETING  AND  MERCHANDISING 


MARKETING  CHANNELS 


19 


H 


owned  by  the  manufacturer;  other  shoe  manufactur- 
ers sell  direct  to  retailers;  while  stiU  others  util- 
ize the  traditional  jobber-retailer  method.  Despite 
the  many  methods  used  to  carry  manufactured  goods 
to  consumers,  it  is  possible  to  generalize  regardmg 
channels  of  trade  as  far  as  certain  great  staple  lines 
are  concerned.  We  have  already  said  that  most  drug 
store  lines,  groceries,  dry-goods,  and  hardware  are 
sold  thru  the  jobber.  Hence  if  we  are  to  recognize 
any  normal  current  in  modern  trade,  it  must  be  that 
which  flows  from  the  manufacturer  to  many  jobbers, 
from  each  jobber  to  many  retailers,  and  from  each  re- 
tailer to  many  consumers.  It  is  true  that  thousands 
of  manufacturers  do  not  use  this  method  of  selling. 
Nevertheless  the  manufacturer- jobber-retailer-consu- 
mer system  is  stiU  strongly  intrenched ;  and  it  is  in  the 
shifting  relations  among  the  four  members  of  this 
chain  of  distribution  that  most  of  the  complicated 
problems  of  modem  marketing  have  their  origin. 

12.  Selling  problems  and  manufacturing  prob- 
lems.— ^A  generation  ago  manufacturing  was  the 
hardest  problem  in  business.  Today  selling  has 
taken  its  place.  Science  and  standardization  have 
gone  so  far  that  almost  any  manufacturing  riddle  can 
be  unraveled  when  brains  and  money  are  concentrated 
upon  it.  This  is  because  there  are  two  factors  in 
manufacturing — ^the  machine  factor  and  the  human 
factor.  The  former,  at  least,  can  be  absolutely  con- 
trolled.    In  marketing  there  is  no  machine  factor. 


There  is  only  the  human  element,  and  no  one  has  yet 
devised  a  sure  plan  to  harness  human  nature  and 
make  it  act  m  definitely  predetermined  ways.  It  is 
said  that  ninety-five  per  cent  of  all  business  problems 
are  selling  problems.  Whether  this  is  so  or  not,  no 
one  will  deny  the  number  and  difficulty  of  selling 
problems— and  their  most  comphcated  phase  is  the 
relation  of  trade  factors  arising  out  of  the  character- 
istic indirect  exchange  of  modern  industry. 

13.  Who  is  a  middleman? — The  outstanding  figure 
in  merchandising  is  the  middleman.    When  the  pres- 
ent distributing  system  is  criticised,  it  is  the  middle- 
man with  whom  fault  is  usually  found.     Some  of  this 
fault-finding  is  justified;  most  of  it  is  unjustified, 
and  is  founded  on  misunderstanding  of  who  the  mid- 
dleman is  and  what  he  does.     The  word  middleman 
is  often  incorrectly  applied  only  to  the  jobber  or 
other  types  of  wholesaler.     Actually  a  middleman  is 
any  one  who  stands  between  the  prime  producer  and 
the  consumer,  and  who  exacts  a  profit  for  the  risk  he 
runs  in  addition  to  payment  for  the  cost  of  his  ser- 
vices.    To  be  sure,  the  jobber  is  a  middleman,  but  so 
too  istthe  retailer.     There  is  much  loose  talk  about 
eliminating  the  middleman.     There  would  be  less  if 
people  understood  that  when  talking  about  the  mid- 
dleman they  were  talking  not  about  any  one  group  of 
distributors  but  about  every  individual  and  every  fac- 
tor standing  between  the  manufacturer  and  the  con- 
simier.     Some  middlemen  may  disappear  and  the 


20         MARKETING  AND  MERCHANDISING 


MARKETING  CHANNELS 


21 


functions  of  others  may  be  changed,  but  the  elimina- 
tion of  the  middleman  as  a  class  is  a  physical  impos- 
sibihty  in  pur  complicated  civilization. 

14.  What  the  middleman  does. — Middlemen  are 
the  chief  agents  in  adjusting  supply  to  demand. 
They  provide  a  clearing  house  for  the  facts  of  supply 
and  demand.  The  manufacturer  in  one  part  of  the 
world,  for  instance,  learns  of  the  needs,  desires,  and 
demands  of  people  in  other  parts  of  the  world  thru 
the  chain  of  middlemen  standing  between  him  and 
them.  Many  manufacturers  can  not  feel  the  pulse 
of  the  market  at  first  hand,  simply  because  of  the  very 
large  number  of  people  that  make  up  the  market. 
Middlemen  do  this  for  them.  Just  as  the  middle- 
man gives  to  the  manufacturer  a  knowledge  of  de- 
mand, so  he  gives  to  the  consumer  a  knowledge  of 
supply.  Suppose  that  in  a  world  without  middle- 
men you,  a  consumer,  wish  to  buy  salt.  Where  are 
you  to  buy  it?  Where  is  it  produced?  Who  sells 
it?  You  might  learn  all  this  about  salt  after  careful 
mvestigation,  but  would  you  have  the  time  to  make 
the  same  inquiry  about  all  the  other  things  you  eat 
and  wear  and  use?  The  middleman  saves  yt)u  this 
trouble.  He  brings  together  in  a  retail  store  most  of 
the  things  you  need ;  in  other  words,  he  makes  it  un- 
necessary for  you  to  obtain  for  yourself  a  first-hand 
knowledge  of  sources  of  supply. 

15.  Four  kinds  of  utility.— Another  great  function 
of  the  middlemen  is  to  create  utilities.  There  are 
four    kinds    of    utilities.    Elementary    utility    is 


illustrated  by  the  qualities  in  wheat  which 
enable  it  to  support  life.  Form  utility  is  given  to 
wheat  when  it  is  ground  into  flour  in  order  to  make  it 
palatable.  Altho  these  two  kinds  of  utility  are  es- 
sential to  every  one,  the  fact  that  flour,  possessing 
both  elementary  and  form  utility,  is  in  the  miller's 
warehouse  in  Minneapolis,  is  of  little  interest  to  the 
hungry  man  in  New  Orleans.  Place  utility  must  be 
added  to  it.  Even  with  the  addition  of  place  utility, 
however,  the  New  Orleans  man  may  not  be  able  to  use 
it.  If  it  is  brought  to  his  place  in  January  and  he 
needs  it  in  July,  it  is  of  no  use  to  him  unless  it  is  stored 
by  some  one  so  it  will  be  available  to  satisfy  his  July 
needs.  Even  possessing  elementary,  form,  and  place 
utility,  the  flour  can  not  be  used  unless  it  also  has 
time  utility — the  quality  of  being  available  for  use 
when  it  is  needed.  With  elementary  and  form  utility 
the  market  organization  has  nothing  to  do,  but  with 
place  and  time  utility  it  has  very  much  to  do.  Mid- 
dlemen produce  place  and  time  utility;  they  carry 
things  from  the  place  where  they  are  produced  to  the 
place  where  they  are  needed,  and  put  them  at  the  dis- 
posal  of    consumers    at   the   time   when   they   are 

needed. 

16.  The  middleman  as  a  producer. — It  is  the  fash- 
ion nowadays  to  decry  present  methods  of  market- 
ing, to  charge  that  middlemen  are  non-producers,  and 
to  proclaim  a  coming  day  of  direct  contact  between  all 
makers  of  goods  and  their  ultimate  consumers.  The 
public  often  falsely  ranks  as  producers  only  manuf ac- 


mm 


MARKETING  AND  MERCHANDISING 


MARKETING  CHANNELS 


23 


turers  and  those  who  furnish  them  with  raw  materials. 
The  mere  handler  of  goods,  the  transporter,  the  ware- 
houseman, the  dealer,  is  put  on  the  defensive.  It  is 
well  to  inquire  just  who  is  a  producer.  The  best  defi- 
nition of  a  producer  is  "one  who  creates  utility." 
The  definition  says  nothing  about  the  kind  of  utility 
created ;  it  certainly  does  not  refer  alone  to  the  crea- 
tion of  elementary  and  form  utility.  The  men  who 
grow  wheat  arid  the  men  who  grind  it  into  flour  are 
not  the  only  producers.  If  the  creation  of  time  and 
place  utility  is  a  characteristic  of  the  producer,  then 
we  must  also  class  as  producers  those  who  transport 
the  flour  to  the  place  where  it  is  needed  and  those 
who  hold  it  there  until  it  is  needed.  A  producer 
is  one  who  creates  any  kind  of  utility.  In  his  ''Ele- 
ments of  Economics"  Professor  Richard  T.  Ely  says: 

It  has  seemed  to  some,  even  among  economists  of  an 
earlier  time,  that  the  farmer  is  more  truly  a  producer  than 
the  manufacturer,  and  the  manufacturer  than  the  mer- 
chant; but  careful  thought  discloses  the  fallacy  of  such  a 
view.  All  industrial  classes  alike  produce  one  or  more  of 
the  four  sorts  of  utility,  and  they  do  so  by  changing  the 
relations  of  things  in  time  or  space.  The  farmer  changes 
the  positions  of  grains  of  corn  by  dropping  them  into  the 
earth.  Then  he  removes  the  weeds  and  throws  earth  about 
the  rising  stalks.  Thus  man's  arts  in  changing  the  rela- 
tio„,  and  position,  of  things,  aided  by  Natu«'f  materials 
and  forces,  result  in  more  com  for  human  consumption. 
The  manufacturer  in  the  same  way  changes  the  position  of 
pieces  of  matter,  and,  aided  by  natural  forces  within  the 
object  of  production,  he  causes  the  matter  to  assume  a 
form  that  fits  it,  or  better  fits  it,  for  human  needs.     So, 


too,  the  merchant  changes  the  places  of  things  from  where 
they  are  in  one  place  until  a  change  of  external  circum- 
stances gives  them  greater  utility.  He  is  producing  utili- 
ties as  truly  as  the  farmer  or  the  manufacturer. 

17.  Why  middlemen  are  necessary. — It  is  not  pos- 
sible to  defend  all  middlemen.  There  are  some  in- 
dustries in  which  it  is  becoming  possible  and  econom- 
ical to  do  without  middlemen  entirely.  In  other  in- 
dustries a  smaller  number  of  middlemen  are  being 
used.  This  does  not  mean  that  the  middleman  is  dis- 
appearing from  commerce.  To  admit  that  a  given 
type  of  middleman  is  unjustified  and  should  be  elim- 
inated, is  very  far  from  saying  that  all  middlemen 
are  unneeded  and  must  go.  Our  present  purpose  is 
merely  to  show  that  the  middleman  is  necessary  to 
industry,  rather  than  to  defend  any  particular  repre- 
sentative of  the  class.  The  middleman  exists  not  be- 
cause he  consciously  set  out  to  make  a  place  for  him- 
self, nor  because  consumers  have  blindly  permitted 
him  to  come  between  them  and  the  manufacturers 
whose  goods  they  buy.  He  exists  because  he  has  been 
forced  into  existence,  on  the  one  hand,  by  the  neces- 
sities of  specialized  and  large  scale  industry  and,  on 
the  other  hand,  by  the  necessities  of  consumers 
equally  specialized  in  their  activities  and  constantly 
demanding  more  and  more  in  the  way  of  service  which 
the  distant  manufacturer  must  usually  rely  upon  the 
middleman  to  give. 

This  is  an  age  of  indirect  exchange  of  goods  and 


p 


24         MARKETING  AND  MERCHANDISING  • 

services.  Our  pioneer  ancestors  who  grew  on  their 
farms  all  they  needed  to  feed  and  clothe  their  families, 
are  gone.  We  are  all  specialists  in  one  narrow 
groove  in  industry,  and  we  have  no  time  to  hunt  out 
for  ourselves  all  the  other  specialists  whose  goods  we 
need.  Whole  communities  are  specialists.  Pitts- 
burgh makes  iron  and  steel  products ;  Danbury  makes 
hats;  Troy  makes  collars  and  shirts;  Gloversville 
makes  gloves;  the  Dakotas  grow  wheat;  the  South 
grows  cotton;  many  states  grow  apples.  A  com- 
munity can  not  exchange  its  specialized  product 
directly  for  the  specialized  products  of  almost  count- 
less communities.  Some  clearing-house  arrangement 
is*  necessary  to  market  the  products  of  one  community 
and  to  bring  to  it  the  products  of  others.  This  is 
the  function  of  the  middleman. 

The  middleman  has  grown  out  of  the  conditions 
that  characterize  our  civilization.  Some  middlemen 
will  go,  and  others  will  change  their  functions ;  but  as 
a  class  middlemen  will  continue  to  exist  and  to  justify 
their  existence  as  long  as  we  continue  to  operate  un- 
der the  form  of  society  and  of  industry  which  brought 
them  into  being. 

* 

REVIEW 

State  the  various  ways  in  which  goods  may  be  marketed. 

What  changes  have  occurred  in  the  marketing  of  goods  by 
manufacturers  ? 

What  advantages  does  eaoh  of  the  following  methods  of  sell- 
ing direct  to  consumers  offer  to  manufacturers:  (a)  canvassers, 
(b)  specialty  salesmen,  (c)  by  mail? 

What  is  the  function  of  the  modern  retailer? 


MARKETING  CHANNELS 


25 


Discuss  types  of  retailers;  of  jobbers. 

Compare  the  old  and  new  chains  of  distribution. 

How  would  you  define  a  middleman  and  what  function  does 
he  perform?  Is  he  necessary  in  industry?  Will  he  be  likely 
to  survive? 


I 


CHAPTER  III 


THE  LOCAL  RETAILER 


•  1.  Meaning  of  local  retailer. — The  phrase  local  re- 
tailer is  used  here,  perhaps  somewhat  "arbitrarily,  to 
refer  to  the  country  general  store,  the  specialty  store, 
and  the  department  store.  It  does  not  include  chain 
stores  or  mail-order  houses.  The  chain  store  is  local 
in  a  sense,  but  its  central  control  puts  it  in  a  separate 
classification  so  far  as  a  study  of  marketing  and  mer- 
chandising is  concerned.  Despite  the  large  business 
of  the  chains  and  the  influence  of  the  mail-order 
houses  in  certain  fields,  the  great  majority  of  con- 
sumer goods  continue  to  pass  over  the  counters  of  lo- 
cal retailers.  The  local  retailer  serves  as  the  greatest 
source  of  supply  for  consumers  and  the  greatest  out- 
let for  manufacturers  and  jobbers. 

2.  Development  of  specialty  stores. — The  first  re- 
tail stores  were  probably  specialty  stores;  each  store 
dealt  in  only  one  kind  of  goods  or  in  a  few  closely 
aUied  lines.  These  stores  grew  up  in  the  towns.  In 
medieval  times  there  was  little  country  life  as  we 
know  it  now;  the  population  of  most  countries  was 
congregated  in  settlements  around  castles,  because 
the  unsettled  conditions  of  the  times  made  isolated 
residences  unsafe.     The  tpwns  that  were  of  sufficient 

26 


LOCAL  RETAILERS 


27 


size  harbored  enough  little  specialty  shops  to  satisfy 
most  of  the  demands  of  the  inhabitants.  The  smaller 
places  that  could  not  support  a  group  of  specialty 
shops  in  all  lines,  depended  on  itinerant  merchants 
for  what  their  own  stores  could  not  supply. 

3.  Why  the  general  store  appeared. — With  the  in- 
creased safety  of  more  settled  times,  the  country  out- 
side of  the  towns  became  more  thickly  settled.  For 
each  group  of  country  dwellers  there  was  some  center, 
a  cross-roads,  perhaps,  or  a  hamlet.  Here  there 
might  be  a  few  specialty  stores,  but  ordinarily  the 
population  tributary  to  the  small  trading  center  was 
not  large  enough  to  support  specialty  shops  in  all 
lines.  Itinerant  merchants  declined  in  importance, 
and  there  was  need  for  some  new  method  for  satisfy- 
ing the  wants  of  country  communities. 

Out  of  this  need  developed  the  country  general 
store.  A  country  community  which  can  not  support 
a  separate  grocer,  a  separate  dry-goods  merchant,  a 
separate  hardware  dealer,  and  so  on,  can  provide  a 
living  for  one  dealer  handling  all  these  lines  and  many 
others  besides.  We  do  not  know  when  the  general 
store  first  appeared,  but  in  Europe  it  certainly  was  a 
much  later  development  than  the  small  one-line  store. 
In  the  United  States  the  specialty  store  and  the  gen- 
eral store  have  grown  up  together.  In  earliest  colo- 
nial times  we  find  them  both,  and  both  have  contin- 
ued in  their  respective  fields  to  the  present  time. 

4.  Rise  of  the  department  store. — A  still  later  de- 
velopment is  the  department  store.     It  is  a  country 


,'• 


't    i 


it-. 


"■  1 

r 


28 


MARKETING  AND  MERCHANDISING 


LOCAL  RETAILERS 


29 


general  store  on  a  large  scale.  Its  field  is  the  city  in- 
stead of  the  country,  because  only  in  the  city  is  suffi- 
cient trade  found  to  support  it.  The  department 
store  appeared  first  in  France,  altho  the  United 
States  and  other  countries  were  quick  to  adopt  it. 
Today  it  is  found  almost  everywhere  in  the  civilized 
world,  and  its  rapid  growth,  its  problems,  and  its  pos- 
sibilities have  been  potent  in  breaking  down  old  trade 
walls  and  in  altering  traditional  methods  of  market- 
ing and  merchandising. 

5.  Importance  of  general  stores. — There  are  more 
than  200,000  country  general  stores  in  the  United 
States  that  are  rated  at  $1,000  or  over.  They  are 
the  chief  sources  of  supply  for  a  large  part — possibly 
one-third — of  our  total  population.  Despite  the  in- 
roads on  their  trade  made  by  the  mail-order  houses, 
despite  the  appeal  of  city  stores,  and  despite  the  grow- 
ing importance  of  county  shopping  centers,  the  coun- 
try general  stores  will  continue  to  do  a  tremendous 
volume  of  retail  trade  and  they  will  continue  to  be  of 
first  importance  to  the  manufacturer  and  jobber  who 
seek  their  markets  in  farm  communities. 

6.  Competitive  strength  of  general  stores. — The 
chief  strength  of  the  country  general  store  lies 
in  its  location.  Our  buying  habits  demand  a  nearby 
source  of  many  of  the  things  that  we  eat  and  wear 
and  use.  Just  as  the  comer  grocery  is  a  necessity  to 
the  city  dweller,  so  the  general  store  is  a  necessity  to 
the  farmer.  He  may  buy  many  things  by  mail  or  in 
the  city,  but  for  his  day-by-day  needs  he  depends  on 


the  local  dealer  from  whom  at  any  time  he  can  buy  in 
minimum  quantities  with  maximum  convenience.  It 
is  not  likely  that  any  change  in  conditions  of  country 
life  will  seriously  impair  this  factor  of  strength  in 
the  competitive  position  of  the  general  store. 

The  second  competitive  advantage  of  the  general 
store  is  derived  from  its  intimate  relations  with  its 
customers.  Knowing  the  needs  of  surrounding 
farmers,  it  can  adapt  its  stock  to  local  requirements 
in  a  manner  impossible  to  the  more  distant  establish- 
ment. It  can  grant  credit  on  a  basis  of  sure  knowl- 
edge of  financial  responsibility  with  a  minimum  risk 
of  loss.  In  some  communities,  particularly  in  the 
South,  the  general  storekeeper  acts  as  a  banker,  ad- 
vancing goods  during  the  growing  season,  and 
taking  from  the  farmer  in  exchange  a  lien  upon  the 
ungrown  crop.  The  country  merchant  has  an  un- 
equaled  opportunity  to  build  and  hold  business  on 
the  basis  of  personal  relationship;  by  right  dealing 
and  wise  merchandising  he  can  develop  a  personal 
following  that  will  insure  for  him  a  definite  and  sure 
trade. 

7.  Weakness  of  the  general  store. — The  weaknesses 
of  the  country  general  store  are  partly  inherent 
and  partly  the  result  of  inefficient  merchandising. 
Among  the  inherent  difficulties  is  the  inability  to 
carry  large  assortments  of  any  one  kind  of  goods. 
The  country  store  can  readily  supply  conveniences, 
but  it  offers  little  opportunity  for  choice  or  selec- 
tion in  style  goods  or  other  shopping  lines.     An- 


30 


MARKETING  AND  MERCHANDISING 


LOCAL  RETAILERS 


31 


4. 


< 


other  inherent  weakness  is  the  fact  that  the  store 
is  in  the  country.  The  city  has  an  appeal  to  the 
imagination  that  draws  country  trade,  and  would 
draw  it  even  if  the  general  store  offered  the  same 
assortments  and  the  same  prices  and  service  as  the 
city  store.  These  inherent  disadvantages,  however, 
have  been  and  are  being  overcome  by  good  merchan- 
dising. The  properly  conducted  country  store  is 
finding  it  perfectly  possible  to  do  a  profitable  busi- 
ness, regardless  of  the  increasing  competition  it  has  to 
meet* 

8.  Changes  in  rural  merchandising. — There  has 
been  a  marked  change  in  country  storekeeping  dur- 
ing the  last  quarter  of  a  century.  While  the  typical 
country  store  a  generation  ago  was  characterized  by 
unattractive  exterior,  less  attractive  interior,  oddly 
assorted  stock,  sliding  scale  of  prices,  and  the  open 
cracker  barrel  and  checker-playing  proprietor  made 
notorious  by  humorists,  such  a  store  is  the  exception 
today.  Among  the  important  influences  that  of  late 
years  have  made  for  better  country  stores  are  good 
roads,  the  automobile,  telephone,  rural  free  mail  de- 
livery, parcel  post,  and  moving  pictures. 

Good  roads  and  automobiles  have  widened  the 
shopping  radius  of  the  farmer.  Formerly  depend- 
ent on  the  nearest  store,  he  has  been  enabled  by  quick 
and  cheap  transportation  to  go  twenty  or  thirty  miles 
away  if  the  nearby  dealer  could  not  give  him  the 
goods,  prices,  or  service  he  wants.  The  country 
dealer,  who,  because  the  farmers  had  to  trade  with 


him  whether  they  wanted  to  or  not,  took  no  pains  to 
conduct  a  strongly  competitive  establishment,  has 
found  himself  in  direct  competition  with  every  other 
store  in  the  county  and  its  vicinity.  Dealers  unable 
to  compete  under  these  new  conditions  have  gone  to 
the  wall;  those  who  have  survived  owe  their  success 
not  so  much  to  the  proximity  of  their  customers  as 
to  their  ability  to  give  their  customers  what  they  want. 
This  movement  has  been  helped  by  the  telephone  and 
rural  free  mail  delivery,  which  have  had  their  part 
in  widening  the  farmer's  buying  radius  and  in  per- 
mitting the  local  dealer  to  build  a  telephone-order 
and  mail-order  business  of  his  own.  The  moving  pic- 
ture has  taught  the  country  dweller  to  have  new 
wants.  True,  this  has  helped  the  mail-order  house 
and  the  city  store,  but  it  has  also  helped  the  local 
dealer  who  was  alert  to  find  new  ways  of  serving  his 
trade  and  new  goods  to  catch  their  fancy. 

9.  Problems  of  the  general  store. — The  country 
dealer  usually  thinks  his  chief  problem  is  to  meet 
mail-order  and  city  prices.  Price  is  a  problem,  but  it 
is  not  so  important  a  problem  as  suitable  stocks  and 
satisfactorv  service.  He  can  counteract  his  relative 
weakness  as  a  buying  unit  only  by  keeping  his  gross 
profit  well  below  that  of  his  competitors.  Chief 
among  the  factors  influencing  selling  expense  is  turn- 
over, and  turnover  is  largely  a  matter  of  suitable 
stocks.  Instead  of  buying  much  of  one  style  or  kind, 
he  is  buying  more  styles  and  kinds  but  fewer  units 
of  each.     He  is  depending  less  on  the  periodical  vis- 


32 


MARKETING  AND  MERCHANDISING 


LOCAL  RETAILERS 


33 


its  of  salesmen  and  is  more  and  more  filling  in  his 
stock  by  frequent  mail-orders  to  jobbers  or  manu- 
facturers. He  is  in  many  cases  learning  to  eliminate 
bulky,  slow-selling  items,  and  is  concentrating  on  the 
kinds  of  goods  that  sell  rapidly  and  permit  quick 
turnover.  He  is  increasing  the  radius  of  his  store's 
appeal,  thereby  developing  a  volume  of  business  that 
permits  the  handling  of  large  and  varied  stocks  and 
at  the  same  time  a  rapidity  of  turnover  that  he  must 
get  if  his  prices  are  to  be  satisfactory  to  his  trade. 
By  better  stock  selection,  better  advertising,  personal 
cultivation  of  the  possible  buyers  in  a  wide  area  of 
territory,  and  by  learning  and  applying  the  growing 
body  of  principles  in  the  art  of  merchandising,  the 
country  general  storekeeper  is  solving  his  problems, 
and  is  intrenching  himself  in  a  competitive  position 
from  which  no  competition  now  existing  or  to  be  fore- 
seen is  likely  to  dislodge  him. 

10.  The  general  store  as  a  manufacturers'  outlet. — 
As  an  outlet  for  merchandise  the  country  general 
store  must  be  considered  by  manufacturers  and  job- 
bers. Its  traditional  importance  in  the  rural  field, 
as  well  as  its  increased  power  as  a  result  of  its 
changed  status,  entitle  it  to  a  sympathetic  hearing. 
In  past  years  no  manufacturer  seeking  a  national  dis- 
tribution of  his  products  could  afford  to  ignore  the 
country  store.  Whether  he  were  selling  crackers  or 
clothing,  he  could  not  reach  the  country  trade  except 
thru  the  country  store. 

The  manufacturer  of  crackers  still  believes,  and 


rightly,  that  he  must  have  universal  distribution  if 
he  is  to  get  maximum  sales,  and  that  his  product  must 
be  for  sale  at  the  cross-roads  as  well  as  in  the  larger 
towns.  The  manufacturer  of  clothing,  of  late  years, 
has  sometimes  felt  that  the  greater  fluidity  of  country 
trade  would  permit  him  to  get  all  the  business  he  had 
a  right  to  expect  if  he  sought  chiefly  to  develop  out- 
lets in  the  county-seats  and  other  shopping  centers 
of  rural  communities.  In  other  words,  there  is  a 
tendency  to  regard  the  country  general  store  as  a 
necessary  distributor  of  articles  of  relatively  small 
value,  .but  as  less  necessary  in  the  distribution  of  arti- 
cles representing  a  sufficient  outlay  to  justify  the 
farmer  in  coming  to  town  where  he  can  compare  val- 
ues and  find  wider  assortments  from  which  to  choose. 
To  a  certain  degree,  a  manufacturer  may  wisely 
adopt  this  changed  point  of  view  regarding  the  coun- 
try general  store.  It  is  true  that  the  farmer  can  and 
does  go  farther  to  buy  goods  than  he  went  before  the 
days  of  the  automobile.  It  is  also  true  that  the  bet- 
ter stores  in  the  larger  rural  shopping  centers  are 
becomiqg  increasingly  important  as  distributors  for 
wide  agricultural  areas.  The  danger  in  this  new 
point  of  view  is  that  some  manufacturer,  concentrat- 
ing on  county-seats  or  other  centers  of  rural  trade, 
will  be  distanced  by  a  competitor  who  goes  to  the 
country  general  stores  and,  by  working  closely  with 
them,  enables  them  to  get  and  hold  the  business  of 
surrounding  consumers.  It  is  not  safe  to  ignore  any 
established  and  prosperous  class  of  distributors.     In 


# 


34         MARKETING  AND  MERCHANDISING 

the  individual  case,  a  county-seat  representation  may 
provide  adequate  distribution  of  a  manufacturer's 
line,  but,  speaking  generally,  the  manufacturer  who 
relies  exclusively  on  such  representation  will  be 
greatly  limiting  his  opportunities. 

11.  Importance  of  specialty  stores. — At  least  of 
equal  importance  with  the  country  general  store  in 
the  group  of  local  retailers  is  the  specialty  store— 
the  estabhshment  in  town  or  city  handling  only  one 
class  or  a  few  aUied  classes  of  commodities.  They 
are  the  chief  sources  of  supply  for  our  urban  popula- 
tion, which  now  exceeds  the  total  rural  population. 
Specialty  stores  are  found  in  very  large  numbers. 
For  example,  excluding  chain  stores,  there  are  ap- 
proximately 170,000  separately  owned  grocery  stores, 
60,000  meat  markets,  40,000  drug  stores,  40,000  to- 
bacco shops,  30,000  dry-goods  stores,  and  thousands 
of  others  dealing  in  shoes,  clothing,  jewelry,  hard- 
ware, furniture,  and  all  the  other  great  staples  of 
commerce.  With  the  rapid  growth  of  urban  popula- 
tion in  the  United  States,  specialty  stores  are  assum- 
ing a  constantly  increasing  importance  as  outlets  for 

manufactured  goods. 

12.  Why  the  specialty  store  emsts.—The  specialty 
store  exists  because  it  is  a  convenience,  and  this  is 
its  chief  economic  justification  and  its  chief  source  of 
competitive  strength.  Just  as  the  country  dweller, 
who  must  buy  most  of  the  things  he  needs  in  small 
quantities  and  to  serve  a  day-to-day  need,  requires 
a  nearby  source  of  supply,  so  the  city  dweller  de- 


LOCAL  RETAILERS 


35 


mands  the  convenience  of  the  neighborhood  grocer 
or  butcher  or  druggist  to  satisfy  his  frequent  need 
of  the  necessities  of  every-day  hfe.  Not  all  spec- 
ialty stores  exist  primarily  for  this  reason,  but  most 
of  them  do. 

13.  Complete  stocks. — In  competing  with  the 
country  general  store — and  this  competition  is  in- 
creasing because  of  the  ease  with  which  the  farmer 
can  reach  the  larger  towns  with  their  many  exclusive 
shops — the  specialty  store  offers  the  great  advantage 
of  complete  stocks  in  one  line.  To  an  extent,  it  has 
the  same  advantage  in  competing  with  department 
stores,  altho  many  department  stores  now  offer 
greater  assortments  than  any  except  the  largest  of 
the  specialty  shops  with  which  they  are  in  competi- 
tion. I 

14.  Service  and  its  cost. — Aside  from  convenience 
of  location,  the  chief  competitive  advantages  of  the 
city  specialty  store  are  (1)  the  opportunity  for  a 
more  personal  service  than  is  usually  expected  from 
a  department  store,  and  (2)  relatively  low  operating 
costs.  The  opportunity  for  personal  service  is  ob- 
vious; a  relatively  small  store  dominated  by  the  per- 
sonality of  an  efficient  owner  is  more  likely  to  build 
up  a  loyal  clientele  than  a  large  impersonal  estab- 
lishment where  customers'  only  contact  is  with  hired 
salespeople.  The  reason  for  low  operating  costs  is 
not  so  obvious.  The  department  store  competes 
partly  on  the  basis  of  low  prices,  but  these  low  prices 
are  not  the  result  of  operating  expenses  lower  than 


t 


1 

I. 


•l 


1 


.1 


36         MARKETING  AND  MERCHANDISING 

those  of  competing  specialty  stores.  The  down-town 
specialty  store  may  operate  on  as  expensive  a  basis 
as  the  department  store  next  door,  but  the  specialty 
store  operating  outside  of  the  high  rent  district  usu- 
ally has  to  add  a  smaller  mark-up  for  expenses  of 
doing  business  than  the  department  store.  This 
advantage  is  partly  due  to  relatively  low  rents,  lim- 
ited delivery  radius,  and  to  many  savings  resulting 
from  the  personal  supervision  of  the  owner  over  all 
details  of  operation. 

15.  Problems  of  specialty  stores. — Despite  its 
great  importance  as  a  distributor  and  despite  the 
necessity  and  assurance  of  its  continued  existence 
and  prosperity,  the  separately  owned  specialty  store 
is  facing  many  serious  problems.  The  most  difficult 
to  solve  is  the  increasing  competition  of  chain  stores. 
For  the  present  this  competition  exists  chiefly  in  the 
grocery,  drug,  and  tobacco  industries,  altho  there  are 
many  chains  in  other  fields,  and  the  chain  principle 
of  operation  is  constantly  being  applied  to  new  lines 
of  business.  The  problems  involved  in  this  type  of 
competition  are  considered  in  the  chapter  on  "The 

Chain  Store." 

16.  Limitations. — In  competition  with  chain  stores 
and  department  stores,  the  neighborhood  specialty 
store  is  handicapped  by  a  limited  trade  area,  limited 
advertising  possibihties,  and  inherent  buying  weak- 
ness. 

In  a  small  town,  the  specialty  store  can  draw  trade 
from  the  entire  town  as  well  as  from  the  surroundmg 


LOCAL  RETAILERS 


37 


country;  its  possible  trade  area  is  just  as  wide  as  that 
of  the  local  department  store  or  general  store.  The 
same  is  true  of  the  down-town  specialty  store  in  a 
city.  The  neighborhood  specialty  store  in  the  city 
can  expect  only  a  limited  volume  of  business,  simply 
because  it  is  a  specialty  store. 

Even  in  the  neighborhood  it  serves,  it  has  difficulty 
in  bringing  its  advantages  to  the  attention  of  all  pos- 
sible customers,  because  of  its  limited  advertising 
possibilities.  The  neighborhood  store  can  use  direct- 
by-mail  advertising,  and  it  may  utilize  the  local  mov- 
ing-picture theaters,  but  it  is  usually  shut  off  from 
the  great  selling  power  of  the  city  newspapers. 

17.  Buying  weakness. — All  this  means  limited 
trade,  and  limited  volume  of  trade  contributes  to 
buying  weakness.  The  greatest  problem  of  the  spec- 
ialty store,  whether  in  town  or  city,  is  to  buy  goods 
as  cheaply  as  the  department  store,  the  chain  store, 
or  the  mail-order  house.  To  a  certain  extent  this  ' 
competitive  weakness  is  inherent,  altho  many  retail- 
ers are  finding  ways  to  overcome  it  in  part  at  least. 
One  type  of  attempt  to  combat  it  is  discussed  in  the 
chapter  on  ''Cooperative  Buying  Groups." 

18.  Selling  thru  the  specialty  store. — The  import- 
ance of  specialty  stores  as  outlets  for  manufactured 
goods  needs  no  emphasis.  Occasionally  a  manu- 
facturer may  elect  to  sell  exclusively  to  chain  stores 
or  to  department  stores  or  to  mail-order  houses.  The 
number  that  do  this  is  relatively  small.  Most  manu- 
facturers of  grocery  specialties,  drug  store  items, 


38 


MARKETING  AND  MERCHANDISING 


LOCAL  RETAILERS 


39 


j^ 


hardware,  dry-goods,  shoes,  and  hundreds  of  other 
articles  of  every-day  use  must  find  their  chief  dis- 
tribution thru  specialty  stores.  It  is  to  the  man- 
ufacturer's advantage  to  build  up  these  stores  in 
every  possible  way.  Usually  they  need  and  welcome 
the  assistance  of  manufacturers  and  jobbers.  Ad- 
vertising aids,  improved  systems  of  store  accounting, 
instruction  for  salespeople,  suggestions  for  better 
store  management — ^these  and  many  other  kinds  of 
assistance  to  specialty  storekeepers  can  be  provided 
by  wholesale  sources  of  supply  with  advantage  to 
themselves  as  well  as  to  the  retailers. 

19.  Department  stores  and  their  influence. — It  is 
impossible  to  say  how  many  department  stores  there 
are  in  the  United  States,  because  it  is  not  possible 
to  define  exactly  what  a  department  store  is.  The 
line  between  the  department  store  and  the  country 
general  store  is  indistinct.  Theoretically  in  a  real  de- 
partment store  each  kind  of  goods  should  be  sold  in  a 
separate  department.  Actually  the  distinction  be- 
tween department  stores  and  general  stores  is  a  mat- 
ter of  relative  size  and  volume  of  sales.  Depart- 
ment stores  are  found  in  every  city  and  every  large 
town.  They  serve  millions  of  customers,  and  dis- 
tribute immense  quantities  of  goods.  More  than  one 
department  store  has  yearly  sales  of  fifty  milUon 
dollars  or  more.  As  distributors  of  manufactured 
products  they  must  be  considered  by  every  manu- 
facturer who  seeks  maximum  sales  for  his  goods. 

20.  Operating  economies  of  department  stores. — 


The  competitive  advantages  of  the  department  store 
are  chiefly  the  result  of  large  size  and  favorable  loca- 
tion. It  has  been  said  that  the  department  store  can 
effect  unusual  economies  in  operation.  It  can,  theo- 
retically. The  overhead  expense  for  two  depart- 
ments or  stores  under  a  common  roof  should  be  less 
than  for  the  same  two  stores  under  separate  roofs 
and  separate  ownership.  An  expenditure  for  adver- 
tising that  draws  people  into  the  store  to  inspect  the 
special  offers  in  one  department  may  result  in  sales 
in  many  departments.  A  central  delivery  service 
for  many  departments  should  reduce  delivery  expen- 
ses by  providing  for  the  maximum  use  of  all  delivery 
equipment.  The  necessary  routine  in  selling  opera- 
tions that  is  required  by  large-scale  operation  and  the 
enforced  standardization  of  procedure  should  and 
does  permit  the  use  of  lower-salaried  assistants  than 
is  sometimes  possible  in  a  specialty  store  with  its  more 
personal  service. 

21.  High  cost  of  doing  business. — ^With  all  these 
and  many  more  theoretical  and  actual  operating  sav- 
ings, the  department  store  ought  to  show  lower  ex- 
penses of  doing  business  than  the  specialty  store. 
Normally  it  does  not  show  them.  Department 
store  expenses  of  doing  business  average  higher  than 
the  expenses  of  specialty  stores.  This  is  due  partly 
to  keen  competition.  The  department  stores  in  any 
city  are  usually  close  together ;  to  a  large  extent  they 
appeal  to  the  same  classes  of  people;  none  has  a 
localized  trade.     One  store  adds  an  expensive  item  of 


r 


40         MARKETING  AND  MERCHANDISING 

service,  and  others  promptly  follow  suit.  One  moves 
to  a  newer,  more  favorable,  and  more  expensive  lo- 
cality, and  the  other  stores  follow  its  lead.  The  de- 
partment store  chooses  the  most  central  district  with 
the  highest  land  values,  in  the  first  place,  and  the  fact 
that  increased  trade  is  drawn  to  that  district  raises 
still  more  the  value  of  the  ground  occupied  by  the 
store.  These  and  many  other  factors  operate  to 
increase  the  department  store  cost  of  doing  business 
and  counteract  the  many  economies  made  possible 
by  its  peculiar  form  of  organization. 

22.  The  appeal  of  convenience. — Despite  rela- 
tively high  operating  expenses,  the  department  store 
oflFers  strong  competitive  appeals.  Its  size,  situa- 
tion, and  the  variety  of  its  lines,  make  it  a  convenient 
place  to  trade.  Central  location,  the  possibihty  of 
satisfying  many  kinds  of  wants  under  one  roof,  con- 
centrated credit,  systematic  and  extensive  deliveries 
— ^these  are  all  strong  drawing  cards.  It  often  draws 
trade,  too,  by  offering  to  the  public  other  conven- 
iences not  possible  to  the  smaller  store— rest  rooms, 
restaurants,  concert  halls,  and  other  frequently  ex- 
pensive forms  of  service  that  are  appreciated  by 

shoppers. 

23.  Advantages  resulting  from  size. — The  mere 

size  of  the  department  store  is  a  strong  factor  of 
competitive  strength.  It  is  an  outstanding  estab- 
lishment in  the  community;  its  name  is  a  household 
word,  and  no  shopper  can  escape  its  appeal.  Be- 
cause of  its  size  it  can  afford  to  employ  instructors 


LOCAL  RETAILERS 


41 


to  increase  the  efficiency  and  welfare  of  the  sales 
force.     Its  large  variety  of  goods  and  large  sales 
permit  the  use  of  dominating  advertising  space  in 
the  newspapers.     It  can  make  an  investment  in  facil- 
ities for  handling  its  customers'  credit  on  a  safe  and 
satisfactory  basis.     These  facilities  are  not  always 
available  to  the  smaller  store  that  feels  itself  forced 
at  times  to  grant  credit  to  hold  trade,  regardless  of 
the  right  of  the  customer  to  a  charge  account.     Be- 
cause its  sales  are  large,  the  department  store  is  able, 
and  is  forced,  to  employ  men  of  proved  ability  to 
manage  its  complicated  activities.     Its  big  salaries 
attract  big  men.     It  is  not  true  that  all  department 
stores  are  managed  more  ably  than  all  specialty 
stores.     It    is    true,    tho,    that    when    a    specialty 
store  finds  itself  unable  to  compete  successfully  with 
department  stores,  the  difficulty  is  due  more  often  to 
differences  in  efficiency  of  management  than  to  any 
inherent  advantages   of  the   larger  establishments. 
24.  Buying  strength.— The  department  store  has 
great  buying  strength.     Such  stores  frequently  set 
the  pace  for  specialty  stores;  what  the  department 
store  carries,  the  specialty  store  has  to  carry.     Its 
influence  as  a  distributor  and  its  size  place  it  in  a 
strategic  position  in  its  relations  to  sources  of  supply. 
Its  buying  strength  is  partly  derived  from  its  large 
purchases  of  each  of  the  kinds  of  things  it  carried. 
This  is  not  a  universal  advantage,  because  the  large 
shoe  store,  for  example,  may  buy  and  sell  more  shoes 
than  the  shoe  department  of  the  competing  depart- 


42         MARKETING  AND  MERCHANDISING 


LOCAL  RETAILERS 


43 


l! 


lifplli 


I 


ment  store.  The  department  store's  advantage 
arises  from  the  fact  that  the  store  is  a  much  sought 
outlet  for  manufactured  goods;  its  support  is  often 
essential  to  the  introduction  of  new  goods;  manu- 
facturers are  in  keen  competition  for  its  services, 
and,  to  obtain  its  cooperation,  they  often  grant  it 
buying  advantages  that  are  not  granted  even  to  large 
specialty  stores.  Many  department  stores  will  not 
buy  thru  jobbers;  they  demand  the  jobber's  discount 
for  themselves.  The  elaborate  buying  organization 
of  a  great  department  store  is  in  a  position  to  pick 
up  bargains,  odd  lots,  and  jobs  in  all  the  markets  of 
the  world.  Because  it  can  usually  command  large 
amounts  of  ready  cash,  the  department  store  receives 
the  first  oflFer  of  bargains  from  those  who  must  sac- 
rifice goods  in  order  to  raise  money. 

25.  Extent  of  price  appeal.— The^e  buying  advan- 
tages result  in  the  possibility  of  low  prices,  lower 
often  than  those  of  specialty  stores  despite  the  greater 
expense  of  doing  business  in  the  department  store. 
From  this  it  should  not  be  understood  that  the  de- 
partment store  appeal  is  exclusively  a  price  appeal. 
Formerly  the  price  appeal  was  much  used,  and  today 
many  department  stores  continue  to  operate  on  that 
basis.  Goods  in  one  department  are  at  times  offered 
at  a  loss  in  order  to  create  the  impression  of  equally 
low  prices  thruout  the  store.  The  present  tendency 
is  to  soft-pedal  the  price  appeal.  The  high  cost  of 
operating  is  making  it  difficult  for  department  stores, 
despite  their  buying  strength,  to  ofiPer  consistently 


low  prices.  Quality  and  service  are  the  key-notes  to- 
day, and  it  is  on  this  basis  that  the  better  grade  of 
stores  appeal,  altho  the  period  of  declining  commod- 
ity prices  may  bring  some  return  of  the  general  price 
appeals  that  were  common  before  the  Great  War. 

26.  Competitive  weakness  of  department  stores. — 
As  there  are  inherent  elements  of  strength  in  the  de- 
partment store,  so  there  are  also  natural  elements  of 
weakness.  Some  of  them  have  been  considered. 
Intense  competition  and  attempts  to  outdo  competi- 
tors in  forms  of  expensive  service  are  largely  the 
cause  of  high  operating  costs.  Centralization  of  con- 
trol, so  that  the  management  is  far  removed  from 
customers,  is  a  very  real  element  of  weakness ;  a  care- 
fully planned  sales  operation  may  be  rendered  in- 
effective by  the  lack  of  tact  or  knowledge  of  a  care- 
less clerk.  Waste  and  inefficiency  are  hard  to 
eradicate  in  a  large  machine-like  organization.  The 
path  for  the  department  store  is  by  no  means  free 
from  obstacles.  The  business  involves  large  risks 
and  it  also  involves  large  opportunity  for  profits. 
Its  successful  operation  requires  the  sort  of  rare  ex- 
ecutive ability  that  is  necessary  to  the  successful  con- 
duct of  any  kind  of  large-scale  industry. 

27.  The  price  of  department  store  cooperation. — 
The  manufacturer  who  wishes  to  sell  to  department 
stores  must  be  prepared  to  pay  the  price  of  their 
support.  He  must  usually  offer  a  special  discount. 
Hfe  must  often  agree  to  carry  stock  for  the  depart- 
ment store,  while  granting  the  store  the  minimum 


I 


44         MARKETING  AND  MERCHANDISING 

price  for  maximum  quantity  purchases.  Advertis- 
iner  allowances  are  sometimes  demanded.  At  times 
the  department  store  insists  that  the  manufacturer 
shall  instal  his  own  salespeople  or  demonstrators  to 
sell  goods  for  which  the  store  does  not  pay  until  they 
are  sold.  Occasionally  a  department  store  is  averse 
to  handhng  nationally  advertised  lines,  and  insists 
that  its  own  name  or  trade-mark  shall  appear  ex- 
clusively on  the  things  it  sells.  Manufacturers  at 
times  find  their  regular  patterns  or  styles  are  not 
wanted  by  department  stores,  and,  to  get  the  support 
of  a  particular  store,  they  must  produce  special  goods- 
for  that  one  establishment.  Some  department  stores 
will  not  handle  goods  of  a  certain  type  unless  they 
have  the  exclusive  representation  in  their  community, 
despite  the  legitimate  desire  of  the  manufacturer  for 
ireneral  distribution. 

All  these  obstacles  to  dealing  thru  department 
stores,  and  many  others,  have  not  hindered  the  de- 
velopment of  department  store  trade.  Manufactur- 
ers may  object  to  the  terms  offered  by  the  store,  but 
many  of  them  believe  the  department  store  so  im- 
portant in  its  influence  on  consumers  and  on  smaller 
dealers  alike,  that  they  are  wiUing  to  pay  the  price 
of  department  store  cooperation.  Altho  the  custom- 
ary basis  of  sales  to  department  stores  is  well  under- 
stood by  all  factors  in  trade,  and  altho  there  are  num- 
berless manufacturers  who  deal  successfully  both 
with  department  stores  and  specialty  shops,  the  man- 
ufacturer who  seeks  both  of  these  outlets  must  often 


LOCAL  RETAILERS 


45 


balance,  on  the  one  hand,  the  possible  ill-will  of 
smaller  dealers  who  may  learn  of  the  unusual  favors 
he  grants  the  department  stores,  and,  on  the  other, 
the  very  real  influence  of  the  department  store  in 
creating  local  demand  for  a  commodity.  Not  all 
dealings  with  department  stores  are  on  special  terms. 
Many  articles  are  bought  at  regular  prices  and  on 
regular  terms.  Typical  relations  with  a  department 
store,  however,  are  those  based  on  special  concessions 
dictated  by  the  size  and  buying  power  of  the  estab- 
lishment. 

REVIEW 

Trace  the  development  of  (a)  the  specialty  store,  (b)  the 
general  store,  (c)  the  department  store. 

Give  some  of  the  elements  of  strength  and  weakness  that  are 
found  in  the  general  store. 

Of  what  importance  is  the  general  store  to  the  manufacturer.? 

Discuss  specialty  stores  from  the  standpoint  of  (a)  competi- 
tion, (b)  service,  (c)  advertising,  (d)  buying. 

How  can  a  manufacturer  help  the  specialty  store  to  build  up 
business  ? 

What  advantages  has  the  department  store  over  other  types 
of  stores.'' 

What  points  of  weakness  does  it  show? 
What  concessions  does  a  manufacturer  have  to  make  to  secure 
department  store  cooperation? 


CHAIN  STORES 


47 


I 


m 


m 


1 


CHAPTER  IV 


THE  CHAIN  STORE 


1.  The  chains  place  in  merchandising. — A  chain 
store  is  one  of  a  group  of  stores  operating  under 
single  ownership  or  management.  The  individual 
members  of  the  group  may  all  be  in  one  locality  or 
they  may  be  scattered  over  the  entire  country.  The 
development  of  the  chain  store  method  of  merchan- 
dising has  had  pronounced  influence  on  all  factors 
in  merchandising.  The  independent  retailer  has 
found  in  the  chain  store  a  competitor  of  great 
strength  and  remarkable  vitahty.  The  jobber  sees 
in  the  chain  an  organization  that  deprives  him  of 
much  of  his  best  business  and  that  assumes  for  itself 
jobbing  functions  and  jobbing  profits.  The  manu- 
facturer has  discovered  that  traditional  methods  of 
selling  are  of  little  avail  if  he  seeks  an  outlet  thru 
chain  stores,  and  he  finds  in  the  chain's  ability  to 
develop  and  control  its  own  sources  of  supply  a  limi- 
tation to  the  market  for  his  own  goods.  The  con- 
sumer by  reacting  favorably  to  the  chain  store  appeal 
has  indicated  his  belief  that  the  movement  satisfies 
a  social  need  and  that  it  is  a  legitimate  factor  in  com- 
petitive merchandising. 

2.  Extent  of  chain  store  operations. — ^Altho  the 


^fl 


first  chain  store  system,  The  Great  Atlantic  &  Pacific 
Tea  Company,  was  established  as  long  ago  as  1859, 
most  of  the  better  known  chains  began  operations 
within  a  few  years  preceding  and  following  the  open- 
ing of  the  present  century.  Little  was  heard  of  the 
chains  in  the  early  days  of  their  activity.  They  oper- 
ated quietly  and  efficiently  with  ever  increasing  pat- 
ronage until  in  comparatively  recent  years  the 
business  world  suddenly  awoke  to  their  tremendous 
significance  and  great  strength  in  competitive  retail- 
ing. The  Great  Atlantic  &  Pacific  Tea  Company  is 
today  the  largest  as  well  as  the  oldest  of  the  chains. 
In  1922  it  reported  the  astonishing  total  of  5,232 
stores,  doing  a  business  in  1921  of  $235,302,877. 
No  other  chain  system  approaches  this  leader  in  size, 
but  there  are  several  owning  more  than  1,000  stores 
and  having  annual  sales  in  excess  of  $50,000,000.  In 
1921  the  aggregate  sales  of  eighteen  well-known 
chains  exceeded  one  billion  dollars.  Approximately 
ten  per  cent  of  all  the  grocery  trade  of  the  United 
States  is  estimated  to  be  in  the  hands  of  the  chain 
stores,  and  in  certain  large  cities  the  chains  control 
fifty  per  cent  or  more  of  the  total  grocery  business. 
The  chain  store  business  is  big  business.  Its  influ- 
ences are  far-reaching,  and  in  any  study  of  market- 
ing and  merchandising  it  is  necessary  to  give  con- 
sideration to  its  place  in  competition  and  to  its  re- 
lations to  other  factors  in  trade. 

3.  Fields  in  which  chains  are  found. — The  chain 
principle  has  been  applied  chiefly  to  grocery  stores, 


i 


48 


MARKETING  AND  MERCHANDISING 


CHAIN  STORES 


49 


I 


drog  stores,  tobacco  stores,  candy,  shoes,  hats,  men's 
clothing,  variety  stores  (that  deal  usually  in  five-and 
ten-cent  goods),  restaurants,  and  small-town  depart- 
ment  stores.  It  has  been  applied  to  a  less  degree  to 
hardware,  creamery  products,  jewelry,  musical  in- 
struments, and  other  staple  products.  It  is  not  safe 
to  say  that  any  field  is  not  adapted  to  the  application 
of  the  chain  store  principle.  Theoretically  chain 
stores  should  be  more  successful  in  some  lines  of  busi- 
ness than  in  others,  but  the  constant  invasion  of  new 
fields  by  chains  proves  that  the  difference  in  oppor- 
tunity is  a  difference  of  degree  only  and  that  the  limit 
of  chain  store  possibilities  has  by  no  means  yet  been 
reached. 

4.  Kinds  of  chains. — There  are  two  traditional 
kinds  of  chains — retail  corporations  owning  many 
stores,  which  are  merchandisers  primarily  and  manu- 
facturers incidentally,  if  they  manufacture  at  all ;  and 
manufacturers'  chains,  operated  by  manufacturers 
primarily  to  serve  as  outlets  for  the  products  of  their 
own  factories.  To  be  classed  as  semi-chains  are  re- 
tail buying  associations  or  combines,  groups  of  stores 
operating  to  a  large  extent  independently  but  pooling 
certain  interests  or  surrendering  certain  activities  to 
central  control  in  order  to  get  the  buying  and  other 
advantages  of  the  chains.  The  Rexall  drug  stores 
are  typical  of  this  class.  Finally  there  are  consum- 
ers* cooperative  retail  chains,  little  known  in  America 
but  largely  developed  in  Great  Britain  and  in  Europe. 
There  are  a  few  other  intermediate  types  of  chains 


conforming  more  or  less  closely  to  one  or  another 
of  these  four  main  classes. 

5.  Financial  strength. — The  competitive  strength 
of  the  chain  store  is  due  almost  without  exception  to 
the  one  element  of  size.  Generally  speaking,  the 
chains  are  strong  because  they  are  large  merchan- 
dising units,  and  because  they  have  perforce  devel- 
oped a  degree  of  organization  and  standardization 
which  is  necessary  in  any  large-scale  business.  First 
of  all,  they  have  large  financial  resources.  Their 
capital  stock  is  often  quoted  on  stock  exchanges. 
Some  of  the  great  financial  houses  are  closely  asso- 
ciated with  them,  and  they  have  ready  access  to  es- 
tablished channels  for  borrowing  money  or  floating 
new  stock  issues. 

6.  Advantages  of  location. — The  chain  stores  have 
reduced  the  selecting  of  sites  to  a  science.  With  long 
experience  in  picking  the  best  store  locations,  their 
real  estate  subsidiaries  ascertain  exactly  the  sites  that 
will  prove  most  profitable,  and  then  frequently  ac- 
quire them  in  a  manner  to  reduce  the  rental  charge 
to  a  minimum.  One  of  the  tobacco  chains  frequently 
buys  an  entire  building,  utilizes  only  a  small  corner 
of  it,  leases  the  rejst,  and  makes  enough  on  the  trans- 
action to  return  adequate  interest  on  the  investment, 
pay  the  rent  of  the  store,  and  yield  a  handsome  profit 
besides.  In  selecting  sites  for  stores,  the  chains  have 
applied  the  principle  of  scientific  management;  they 
have  substituted  facts  and  figures  for  guesses  as  to 
the  number  of  customers  that  will  be  attracted  and 


50 


MARKETING  AND  MERCHANDISING 


CHAIN  STORES 


61 


I. 


the  probable  profits  that  will  be  derived  from  any 
particular  location. 

7.  Opportunities  to  standardize. — The  opportunity 
to  standardize  in  many  ways  is  one  of  the  great- 
est sources  of  strength  in  chain  stores.  When  a  large 
number  of  units  are  doing  the  same  thing,  and  when 
sufficient  capital  is  available,  it  is  possible  to  devote 
time  and  money  to  finding  the  one  best  way  for  each 
of  the  units  to  do  that  thing.  For  example,  the  chain 
can  hire  experts  to  standardize  the  appearance  of  the 
interior  and  exterior  of  the  store  so  that  the  appeal 
will  be  strongest  and  most  pleasing  to  prospective 
customers  and  so  that  the  store  functions  can  be  per- 
formed with  a  minimum  of  labor  and  expense  and 
with  the  maximum  of  convenience  to  customers.  The 
chain  can  also  experiment  with  its  many  stores  until 
it  has  found,  for  any  given  type  of  location,  the  pre- 
cise amount  of  space  needed  for  stock,  for  display, 
for  clerks,  and  for  customers,  and  it  can  then  stand- 
ardize on  store  arrangement  so  that  no  unnecessary 
dollar  will  be  spent  for  rent. 

Service  also  can  be  standardized.  Selling  service 
is  an  example.  Somewhere  in  a  great  chain  organiza- 
tion is  a  man  who  specializes  in  retail  salesmanship, 
who  has  studied  the  problem  until  he  has  reduced  it 
to  an  art.  This  art  he  teaches  to  his  salespeople. 
Salesmanship  is  standardized  for  the  benefit  of  cus- 
tomers. The  principles  of  goods  display  can  be 
standardized,  with  an  eye  to  the  pleasure  and  con- 


venience of  the  customer  just  as  much  as  to  reducing 
expenses  and  increasing  profits. 

8.  Dangers  of  standardization. — A  chain  store 
official  once  said:  "The  world  has  been  trying  to  get 
things  done  by  selecting  men  and  trusting  them  un- 
aided to  do  its  work.  Instead,  some  one  in  authority 
should  first  find  the  thing  to  be  done,  then  find  the 
best  way  to  do  it,  and  finally  teach  the  men  to  do  it 
that  way.''  This  is  the  essence  of  scientific  manage- 
ment, which  is  another  name  for  standardization.  It 
is  a  factor  of  chain  store  strength,  but  it  also  has  ele- 
ments of  weakness.  The  danger  is  machine-like  op- 
eration. With  the  concentration  of  initiative  at  head- 
quarters, there  is  danger  that  initiative  will  disappear 
from  the  stores — the  danger  of  leveling  personality 
and  retarding  individual  development.  Many  chains 
combat  this  tendency  by  giving  managers  a  share  in 
profits,  by  systematic  encouragement  of  constructive 
suggestions,  by  providing  always  that  important  posi- 
tions shall  be  filled  by  promotion  from  within  the 
organization,  and  by  other  plans  for  overcoming  the 
dangers  of  necessarily  strict  system  and  routine.  In 
one  notably  successful  chain  the  head  of  the  organiza- 
tion is  an  actual  partner  of  each  store  manager;  the 
individual  managers  are  given  a  large  degree  of 
autonomy,  while  at  the  same  time  the  organization, 
with  its  large  resources,  employs  the  most  skilled  men 
it  can  find  to  operate  as  a  technical  staff  to  help  the 
local  managers  in  eliminating  waste  and  inefficiency. 


I 


1 


§11111 


# I 


MARKETING  AND  MERCHANDISING 

9,  Salaries  and  efficiency. — The  chain  store  system, 
like  the  department  store,  has  one  advantage  in  or- 
ganization that  is  closed  to  the  smaller  store.  It  can 
afford  to  pay  large  salaries  to  employ  trained  men  to 
study,  plan,  and  direct  the  work  all  the  way  down 
the  line.  Salaries  are  not  the  only  measure  of  ability. 
The  supreme  ability  of  an  executive  at  the  home 
office  may  not  be  reflected  in  the  activities  of  his 
subordinates  in  distant  chains.  Nevertheless  the 
chains,  theoretically  at  least,  have  an  advantage  over 
some  of  their  smaller  competitors  to  the  extent  that 
high  salaries  can  command  men  more  skilled  in  com- 
petitive strategy  than  can  smaller  salaries  or  small 
profits. 

10.  Chain  store  advertising. — The  chains  have  an 
advantage  in  advertising.  The  mere  number  of  the 
stores  is  a  continual  advertisement.  It  suggests  suc- 
cess and  business  on  a  large  scale — two  things  that 
always  attract  trade.  The  familiar  store  front,  care- 
fully standardized  with  a  view  to  its  effect  on  the  pub- 
lic, is  an  effective  advertisement.  The  individual 
retail  store  is  often  a  weak  advertiser.  The  manager 
of  a  local  chain  store  may  know  just  as  little  of  ad- 
vertising as  his  competitor  in  an  individually  owned 
store  across  the  street,  but  there  is  a  man  at  head- 
quarters who  knows  much  about  it,  and  he  can  aid  the 
local  manager  with  his  advertisements  or  prepare 
them  for  him.  A  small  independent  store  can  not  ad- 
vertise economically  in  the  papers  of  a  large  city.  A 
chain  of  stores  with  many  branches  in  a  city  can 


CHAIN  STORES 


53 


use  large  space  in  the  newspapers.  If  a  chain  is 
widely  spread  over  the  country,  it  may  even  adver- 
tise on  a  national  scale  in  mediums  of  general  circu- 
lation. Not  all  chains  are  advertisers,  but  they  have 
an  advertising  advantage  if  they  wish  to  use  it. 

11.  Accounting  as  an  asset. — Continual,  automatic 
stock-taking  and  careful  accounting  are  fundamental 
in  most  chain  systems.  Control  of  every  detail  of 
the  business  by  accurate  and  simple  records  is  the  life- 
blood  of  chain  organization.  A  falling  off  in  one 
store  today  must  be  accounted  for,  and  if  the  falling 
off  continues,  immediate  steps  are  taken  to  remedy  the 
situation.  The  accounting  system  shows  quickly 
what  lines  are  profitable  and  what  are  not,  it  directs 
attention  unerringly  to  sources  of  waste,  it  gives 
accurate  costs  of  doing  business,  and  it  reveals  many 
other  things  vital  to  retail  success.  There  is  no 
reason  why  an  independent  store  can  not  have  an 
adequate  accounting  system,  but  often  it  does  not. 
The  chain  store  can  not  exist  without  it. 

12.  Buying  strength. — Buying  strength  is  charac- 
teristic of  the  chain  store,  just  as  it  is  of  any  other 
large-scale  merchandising  unit.  Two  stores  by  pool- 
ing their  purchases  can  buy  in  greater  quantities  and 
often  get  lower  unit  prices  than  one.  Multiply  two 
by  two  hundred  or  a  thousand,  and  the  buying  ad- 
vantage of  the  chains  becomes  obvious.  The  pur- 
chase of  individual  items  by  one  of  the  five-and-ten- 
cent  store  chains,  for  instance,  is  enormous.  Single 
purchases  from  one  manufacturer  not  infrequently 


I    IBI 


I 


64         MARKETING  AND  MERCHANDISING 

are  in  car-load  or  train-load  lots.  It  demands  and 
gets  rock-bottom  prices  on  its  huge  purchases.  In  ad- 
dition to  the  maximum  quantity  discounts,  it  may 
get  extra  price  considerations  because  of  the  desire 
of  a  manufacturer  for  chain  store  distribution.  Its 
trade  may  be  considered  so  desirable  that  a  manu- 
facturer will  grant  a  cash  discount  while  permitting 
payment  to  be  made  on  regular  dating.  The  chain 
almost  always  buys  direct  from  manufacturers.  If 
it  warehouses  its  purchases  and  refills  its  stores'  stocks 
from  its  own  central  surplus,  it  is  legitimately  en- 
titled to  all  the  jobber's  discounts.  Some  chains, 
however,  receive  from  the  manufacturer  the  regular 
discounts  given  to  service  wholesalers,  while  relying 
on  the  manufacturer  to  keep  the  stocks  of  the  local 
stores  filled  from  his  own  warehouses.  Many  of  the 
chains  manufacture  many  of  the  goods  they  sell.  If 
a  chain  credits  itself  with  a  jobbing  or  manufacturing 
profit,  selling  to  its  stores  at  market  rates,  it  can 
often  show  a  satisfactory  profit  even  if  its  stores 
were  to  operate  on  a  no-profit  basis. 

18.  Buying  organization. — A  chain  store  system, 
doing  business  on  a  large  scale,  can  afford  to  maintain 
an  elaborate  and  expensive  buying  organization.  It 
can  have  buyers  in  all  the  important  markets  to  pick 
up  bargains  and  to  seek  out  profitable  novelties.  It 
can  command  sources  of  supply,  and  can  get  certain 
goods  when  the  independents  find  it  impossible  to 
get  them.  Its  large  cash  resources  attract  manu- 
facturers and  jobbers  who  must  turn  goods  quickly 


CHAIN  STORES 


55 


into  money,  ana  who  are  willing  to  sacrifice  profits 
to  make  sales.  Its  strength  in  buying  is  approached 
only  by  that  of  the  great  mail-order  houses  and  largest 
department  stores.  This  is  a  source  of  competitive 
strength  that  the  independent  store  can  seldom  match. 

14.  Tlie  source  of  low  selling  prices. — The  buying 
strength  of  the  chains  contributes  to  the  possibility  of 
offering  low  prices  to  consumers.  If  goods  are 
bought  cheaply,  they  can  be  sold  cheaply.  The  chains 
do  not  always  pass  on  their  buying  savings  to  the 
public ;  some  of  these  savings  they  legitimately  pocket 
as  extra  profit,  altho  the  opportunity  always  exists 
to  use  price  as  a  competitive  advantage.  Selling 
price,  however,  does  not  depend  wholly  on  purchase 
price.  It  is  equally  dependent  on  the  expense  of 
doing  business  and  on  the  amount  of  net  profit  on 
individual  sales. 

15.  Chain  store  expenses. — Most  of  the  chains  op- 
erate on  a  very  low  expense  basis.  In  1915  an  investi- 
gation showed  that  the  expenses  of  doing  business  of 
independent  grocery  stores  averaged  16.5  per  cent 
of  total  sales,  while  in  the  same  year  the  chain  grocer- 
ies reported  an  average  expense  of  only  10  per  cent. 
In  the  period  of  high  prices  and  high  costs  following 
the  Great  War,  chain  store  expenses  climbed  upward 
in  common  with  all  other  expenses,  but  they  remained 
even  then  appreciably  under  the  expenses  of  inde- 
pendent stores.  There  are  many  reasons  for  the  low 
expenses  of  chain  store  organizations.  The  chain 
store  carries  a  minimum  of  stock,  relying  on  a  central 


w 


I 


t< 


1 


II 

i 

'lip" 


56         MARKETING  AND  MERCHANDISING 

warehouse  for  frequent  renewal  of  its  supplies.  Stor- 
ing the  surplus  stock  for  several  stores  in  one  ware- 
house is  cheaper  than  carrying  large  stocks  in  each 
of  the  stores.  Many  of  the  chains  sell  only  for  cash, 
eliminating  the  expense  and  risk  of  loss  of  credit  ac- 
counts. Free  dehvery  is  infrequent  with  chain  stores. 
Some  of  the  chains  have  instituted  self-service  fea- 
tures which  reduces  the  number  of  clerks  needed  to 
handle  the  trade.  Standardization  of  selling  pro- 
cedure reduces  waste  motion  and  time,  minimizes  the 
necessity  of  close  supervision,  sometimes  permits  the 
employment  of  relatively  low-salaried  store  assistants, 
and  in  other  ways  keeps  down  expenses  without  in- 
terfering with  volume  of  sales.  Not  all  chains  oper- 
ate on  a  lower  expense  basis  than  their  independent 
competitors,  but  many  of  them  do,  and,  when  there 
is  a  difference  in  favor  of  the  chain,  this  is  an  advan- 
tage it  can  pass  on  to  the  public  in  the  form  of  lower 

prices. 

16.  Low  pro/its  and  quick  turnovers. — The  final 
factor  in  selling  price  is  net  profit.  An  almost 
universal  characteristic  of  chain  stores  is  a  recogni- 
tion of  the  A  B  C  of  good  retailing— low  profits  on 
each  sale  and  quick  turnover  of  stock.  If  an  entire 
stock  can  be  turned  over  ten  times  a  year,  theoreti- 
cally the  store  will  be  satisfied  with  a  net  profit  on 
each  sale  only  one-tenth  as  large  as  it  would  have 
to  get  if  the  stock  could  be  turned  only  once  a  year. 
A  stock  turnover  in  the  grocery  chains  of  twelve 
times  a  year  is  not  uncommon,  and  stock  turnovers 


CHAIN  STORES 


57 


as  high  as  twenty-five  or  more  times  a  year  are  not 
unknown.  It  is  the  exceptional  independent  store 
that  can  approximate  these  figures.  Some  of  the 
tobacco  and  candy  chains  turn  their  stock  completely 
once  every  week.  A  chain  of  small-town  department 
stores  turns  its  stock  once  a  month.  These  rapid 
turnovers  are  due  primarily  to  good  management 
rather  to  anything  peculiar  to  chain  organization. 
The  one  exclusive  advantage  of  the  chain  in  this 
respect  is  the  possibility  of  controlling  central  ware- 
houses that  permit  the  units  in  the  chain  to  carry 
on  their  shelves  a  minimum  stock  at  any  one  time. 

17.  Importance  of  price  appeal. — Not  all  chain 
stores  use  the  low  price  appeal  for  trade.  Some  of 
them  change  market  prices  but  give  merchandise 
coupons  that  represent  the  equivalent  of  a  fixed  cash 
discount.  Most  of  the  chains  try  always  to  be  under 
the  market,  at  least  on  the  leading  items  in  their  line, 
and  it  is  probable  that  the  price  appeal,  more  than 
any  other  one  thing,  has  been  chiefly  responsible  for 
the  great  spread  of  the  chain  principle  of  merchan- 
dising. 

18.  Are  chain  stores  depression  proof? — The  vital- 
ity of  chain  stores  has  been  proved  in  times  of  business 
depression.  In  1907,  1914,  and  1921,  when  most 
businesses  suffered,  many  of  the  chains  continued  to 
grow  and  prosper.  The  year  1921,  with  its  large 
depreciations  in  inventory,  was  a  bad  year  for  many 
merchants.  Yet  the  sales  of  fifteen  of  the  largest 
chains  in  that  year  aggregated  $798,955,000  as  com- 


!1 


68         MARKETING  AND  MERCHANDISING 

pared  with  sales  of  $754,470,000  in  1920.  True, 
the  increased  sales  were  partly  the  result  of 
operating  an  increased  number  of  stores,  but  the  fact 
that  expansion  was  possible  and  profitable  in  a  time 
of  general  depression  is  a  tribute  to  the  strength  of 
the  organizations.  The  fifteen  ehains  whose  sales 
were  included  in  the  preceding  totals  represented  six 
different  lines  of  business — five  grocery  chains,  four 
five-and-ten-cent  store  chains,  two  tobacco  chains,  one 
chain  of  shoe  stores,  two  candy  chains,  and  one  chain 
of  small-town  general  stores.  Ten  of  them  showed 
large  net  increases  in  sales.  Only  five  showed  small 
decreases.  It  would  seem  that  chain  stores,  as  a  sys- 
tem of  merchandising,  are  almost  depression  proof. 

19.  Weaknesses  of  the  chains. — The  advantages  of 
chain  stores  in  competition  are  great,  but  the  chain 
store  pathway  is  not  entirely  smooth.  There  are  plenty 
of  stones  scattered  around  to  trip  the  unwary.  Not 
all  chains  are  successful.  The  business  is  not  one  for 
the  inexperienced  or  for  those  unfamiliar  with  the 
problems  and  difficulties  of  controlling  scattered  units 
from  one  central  point.  The  problem  of  personnel 
is  a  constant  one  with  the  chains.  It  is  not  easy  to 
find  a  hired  store  manager  who  will  work  as  efficiently 
as  an  independent  store  owner  will  work  for  himself. 
A  great,  machine-like  organization  is  likely  to  have 
some  weak  human  cogs  that  weaken  the  whole  struc- 
ture. Chains  that  too  completely  standardize  the 
stocks  of  all  their  stores,  find  difficulty  in  satisfying 
local  demand  for  unusual  items.    The  impersonal  con- 


CHAIN  STORES 


59 


trol  of  the  organization  is  theoretically  an  obstacle  to 
large  success  in  small  communities,  altho  in  large 
cities  this  disadvantage  is  probably  negligible.  The 
cash-and-carry  principle  of  some  of  the  chains  at 
times  restricts  their  sales.  None  of  these  sources  of 
competitive  weakness,  however,  has  seriously  handi- 
capped the  chains.  There  seem  to  be  fewer  and  less 
important  elements  of  inherent  weakness  in  chain 
store  retailing  than  in  any  other  form  of  retail  mer- 
chandising. 

20.  How  the  independent  can  compete. — ^Despite 
the  many  and  important  advantages  of  the  chain 
store  in  competition  with  the  independent,  the  inde- 
pendent continues  to  thrive  and  will  probably  always 
continue  to  do  so.  The  country  is  not  yet  ready  to 
turn  its  retail  merchandising  over  to  a  few  large 
corporations.  There  is  enough  business  for  all,  and 
the  well-managed  independent  seems  to  be  amply  able 
to  get  its  share.  Even  in  the  matter  of  prices,  the 
independent  store  can  go  a  long  way  toward  matching 
the  chains'  offers.  Price  is  as  much  a  matter  of  effi- 
cient management  and  shrewd  selling  as  it  is  of  low 
first  costs.  The  two  greatest  factors  in  low  selling 
prices  are  quick  turnover  and  low  profits  on  the  indi- 
vidual sale.  There  is  no  good  reason  why  the  inde- 
pendent, as  well  as  the  chain,  can  not  use  these  selling 
weapons. 

Some  of  the  chains  push  their  own  private  brands 
rather  than  standard,  advertised  articles.  The  in- 
dependent store  handling  lines  largely  and  favorably 


60         MARKETING  AND  MERCHANDISING 


CHAIN  STORES 


61 


known  to  the  consumer  has  a  sure  basis  of  competition 
with  the  private  brands  of  the  chain.  Hundreds  of 
thousands  of  people  find  credit  and  delivery  service  a 
convenience  for  which  they  are  willing  to  pay.  Other 
multitudes  must  have  credit  to  carry  them  over  slack 
times.  The  independent  store  offering  these  kinds  of 
service  will  always  get  business  in  competition  with 
the  cash-and-carry  chain.  The  independent  that  de- 
velops and  properly  uses  an  individual  and  attractive 
form  of  advertising  will  draw  trade  despite  the  price 
appeal  of  the  chain.  Most  important  of  all  in  the 
competitive  armor  of  the  independent  store  is  its 
unique  opportunity  to  give  a  highly  personal  service, 
to  capitalize  the  personahty  of  the  owner,  to  adapt  its 
stock  to  the  pecuhar  requirements  of  its  customers,  to 
advertise  legitimately  thru  the  local  civic  activities  of 
the  owner  and  his  assistants,  and  in  many  other  ways 
to  hold  a  chentele  on  the  basis  of  personal  good-will, 
neighborly  friendship,  and  the  traditional  importance 
of  the  independent  merchant  in  our  economic  and 
social  system. 

The  chain  store  at  times  may  be  able  to  undersell 
the  independent  but  it  can  not  "over-serve"  him. 
This  is  the  independent's  opportunity.  Chain  stores 
will  undoubtedly  continue  to  grow  in  size  and  in- 
fluence, but  only  the  extreme  chain  store  enthusiast 
foresees  a  time  when  there  will  cease  to  be  abundant 
opportunity  for  the  well-managed  independent  retail 
establishment. 

21.  The  manufacturer's  point  of  view. — ^When  a 


manufacturer  considers  chain  stores  as  distributors  for 
his  product,  his  problems  are  almost  exactly  the  same 
as  the  problems  involved  in  his  consideration  of  de- 
partment stores  as  outlets.     These  problems  were  con- 
sidered in  the  preceding  chapter.     If  he  wishes  chain 
store  cooperation,  he  must  be  willing  to  pay  the  price. 
This  price  usually  takes  the  form  of  special  conces- 
sions of  many  kinds — discounts,  delivery,  terms  of 
payment,  and  other  forms  of  special  consideration. 
In  many  cases  he  must  be  prepared  to  have  the  chains 
offer  his  goods  to  consumers  at  lower  prices  than  can 
be  offered  by  independent  distributors.     His  goods, 
even  when  stocked  by  a  chain,  may  receive  little  at- 
tention from  the  chain's  employes  who  are  paid  to 
push  its  own  private  brands.     Some  of  the  chains 
make  a  point  of  carrying  nationally  advertised  goods 
but  the  usual  preference  of  the  chains  seem  to  be  for 
special  brands.     In  such  cases  the  manufacturer  who 
seeks  this  large  market  may  be  tempted  to  manu- 
facture goods  bearing  only  the  private  brands  of  the 
chains.     In  this  case  he  must  give  careful  thought  to 
the  considerations  presented  in  the  chapter  on  "The 
Private  Brand  Problem."     The  chains  offer  a  large 
market,  but  in  cultivating  it  the  manufacturer  may 
sometimes  sacrifice  security  for  profit. 

In  spite  of  the  frequent  difficulties  of  selling  thru 
chain  stores,  their  activities  are  so  enormous  that  no 
manufacturer  seeking  national  distribution  in  fields 
in  which  the  chains  are  strong,  can  afford  to  leave 
them  entirely  out  of  his  plans.     He  may  decide  that 


62 


MARKETING  AND  MERCHANDISING 


Pit 


his  best  interests  are  served  by  confining  his  sales  to 
independent  stores,  but  he  will  be  unwise  in  coming 
to  this  decfsion  unless  he  has  first  carefully  canvassed 
the  entire  chain  store  problem  and  weighed  in  the  bal- 
ance the  price  of  chain  store  cooperation  and  the  ad- 
vantages to  be  derived  from  getting  their  great  power 
behind  his  product. 

REVIEW 

How  is  the  chain  store  regarded  by  the  independent  retailer, 
the  jobber,  the  manufacturer  and  the  consumer? 

In  what  fields  are  chain  stores  found? 

What  are  the  principal  types  of  chains? 

Discuss  the  advantages  which  chain  stores  possess. 

What  points  of  weakness  have  they  shown? 

In  what  ways  may  the  independent  compete  successfully 
Against  the  chain? 


CHAxTER/  V 


THE  MAIL-ORDER  HOUSE 


i 


!•  Influence  of  selling  by  mail. — Among  the  not- 
able influences  on  marketing  and  merchandising  in 
the  last  quarter  of  a  century  has  been  the  rise  of  the 
mail-order  house.  A  single  generation  has  seen  the 
small  beginnings  of  this  new  factor  in  distribution,  its 
rapid  development,  and  its  arrival  at  a  point  that  pos- 
sibly marks  the  zenith  of  its  dominating  influence  in 
the  rural  field.  The  rise  of  the  mail-order  house  has 
been  a  most  significant  movement.  Unquestionably 
it  has  had  a  marked  effect  on  rural  buying  habits  and 
standards  of  living.  It  has  done  much  to  bring  about 
a  realignment  of  small-town  retailing.  It  has  not- 
ably affected  the  business  of  jobbers,  whose  trade 
depends  largely  on  the  growth  of  country  retailers. 
For  the  manufacturer,  it  has  opened  up  new  markets 
at  the  same  time  that  it  has  added  to  marketing  prob- 
lems and  has  complicated  the  relations  between 
manufacturers  and  dealers.  The  mail-order  house 
and  its  influences  can  not  be  ignored  by  any  one  who 
has  anything  to  sell.  It  has  been  reviled  as  an  il- 
legitimate intruder  in  the  business  field,  and  it  has 
been  hailed  as  the  patron  of  rural  development. 
The  problems  involved  in  mail-order  selling  are  uni- 

63 


e 


64 


MARKETING  AND  MERCHANDISING 


MAIL-ORDER  HOUSES 


65 


versaL  What  is  its  extent?  What  is  its  nature? 
What  is  its  competitive  strength?  How  can  the 
local  store  compete? 

2.  Who  sells  by  mail? — Selling  by  mail  is  prac- 
tised by  many  kinds  of  business  houses.  First  is 
the  manufacturer  who  sells  exclusively  by  mail  to 
jobbers,  retailers,  or  consumers,  or  who  combines  this 
method  of  selling  with  the  use  of  personal  salesmen. 
Second  is  the  wholesale  house  that  either  sells  en- 
tirely to  retailers  by  mail,  or  uses  the  mails  to  en- 
courage orders  between  the  visits  of  its  salesmen. 
Third  is  the  retailer  who  mixes  over-the-counter  meth- 
ods with  solicitation  of  mail-orders,  or  who  de- 
pends on  the  mails  alone  for  his  contact  with  con- 
sumers. Any  house  that  sells  in  any  degree  by  mail 
is,  strictly  speaking,  a  mail-order  house.  In  com- 
mon use,  however,  the  phrase  mail-order  house  is 
reserved  for  a  particular  type  of  establishment.  It 
usually  means  a  large  organization  selling  direct  to 
the  consumer  by  mail  alone,  handling  usually  a  di- 
versified hne  of  general  merchandise,  acting  chiefly 
as  a  middleman,  altho  in  some  cases  owning  factories 
that  produce  part  of  the  things  it  sells.  It  is  this 
type  of  distributor  we  shall  have  in  mind  in  dis- 
cussing the  mail-order  house,  always  remembering 
that  the  phrase  is  just  as  legitimately  applied  to  the 
mail-selling  wholesaler  or  to  the  manufacturer  who 
uses  the  mails  to  reach  any  class  of  customers. 

3.  Extent  of  mail  sales. — Different  investigators 
have  estimated  that  from  three  to  six  per  cent  of  the 


total  retail  business  of  the  United  States  is  conducted 
by  mail,  and  that  as  high  as  twenty  per  cent  of  the 
retail  trade  of  rural  districts  has  gone  to  mail-order 
houses.  Whether  these  figures  are  accurate  or  not, 
it  is  certain  that  the  mail-order  business  is  very  large 
in  the  aggregate  and  that  its  influence  on  all  factors 
in  marketing  and  merchandising  is  appreciable. 
One  mail-order  house,  at  the  peak  of  prosperity  and 
high  prices  in  1920  piled  up  sales  totaling  almost 
a  quarter  of  a  billion  dollars.  It  may  be  some  time 
before  these  figures  are  again  reached,  but  annual 
sales  of  from  fifty  to  one  hundred  million  dollars  or 
more  are  not  uncommon  for  mail-order  houses  in  the 
period  following  war-time  inflation  of  prices.  Any 
method  of  selling  that  can  boast  even  a  few  houses 
doing  business  in  these  amounts  must  be  given  care- 
ful consideration  in  a  study  of  marketing. 

4.  When  selling  by  mail  began. — The  mail-order 
house  was  made  possible  by  the  development  of  quick 
and  cheap  means  of  transportation  and  communica- 
tion. It  could  not  take  an  important  place  in  in- 
dustry until  the  country  was  covered  by  a  net-work 
of  railroad  lines  or  until  the  mail,  express,  and  freight 
systems  had  reached  a  point  that  permitted  the  quick 
receipt  of  orders  in  a  central  market  and  the  quick 
and  economical  delivery  of  merchandise  even  to  far- 
distant  and  relatively  isolated  consumers.  The  mail- 
order business  as  we  now  know  it  was  born  in  the 
generation  following  the  Civil  War,  which  was 
the  period  that  witnessed  an  extraordinary  develop- 


i 


4 


■J 


MARKETING  AND  MERCHANDISING 

ment  in  our  national  systems  of  communication  and 
transportation. 

5.  The  effect  of  rising  prices. — The  opportunity 
for  large  growth  of  mail-order  houses  was  afforded 
by  profound  changes  in  economic  conditions  that  oc- 
curred in  the  nineties  of  the  last  century.  A  period 
of  generally  declining  prices  set  in  with  the  close 
of  the  Civil  War,  coincident  with  the  settlement  of 
the  West  and  the  consequent  large  increase  in  agri- 
cultural products  without  corresponding  increases  in 
the  market  for  these  products.  During  this  time 
when  standards  of  living  were  at  a  standstill,  there 
was  relatively  small  demand  on  the  farm  for  goods 
other  than  those  supplied  by  the  local  dealer.  About 
1895  the  price  curve  began  to  turn  upward,  and  it 
continued  upward  for  twenty-five  years,  almost  all 
of  them  marked  by  increasing  prosperity  and  by  an 
increasing  opportunity  for  the  consumer  to  satisfy 
his  growing  material  requirements.  The  substan- 
tial development  of  mail-order  houses  is  exactly  con- 
temporaneous with  the  upward  movement  of  the 
price  curve. 

6.  Inadequate  stocks  in  country  stores. — As  the 
farmer  began  to  get  more  for  his  products,  he  began 
to  want  to  buy  and  to  be  able  to  buy  things  that  he 
had  been  forced  to  do  without  in  the  lean  years 
preceding  his  prosperity.  The  small-town  stores 
that  had  adequately  served  country  communities  in 
which  money  was  scarce  no  longer  were  able  to 
satisfy  the  increasing  requirements  of  a  rapidly  rising 


MAIL-ORDER  HOUSES 


67 


standard  of  living.  This  was  only  partly  due  to 
failure  of  the  country  dealer  to  change  his  methods 
to  accord  with  new  conditions.  It  was  chiefly  due 
to  inherent  difficulties  of  the  general  store  in  its  com- 
petition with  large  mail-order  houses.  Perhaps  the 
greatest  single  cause  of  the  rapid  growth  of  the 
mail-order  business  is  the  necessary  limitations  on 
the  stock  of  the  country  general  store.  Handling  a 
little  of  everything  that  the  farmer  eats  and  wears 
and  uses,  it  can  stock  but  little  of  any  one  thing. 
Its  range  of  sizes,  styles,  and  kinds  is  necessarily 
closely  restricted.  The  large  mail-order  establish- 
ment, offering  to  the  farmer  and  his  wife  nearly 
everything  within  the  range  of  human  wants,  widened 
the  consumer's  ideas  of  living  standards,  aroused 
discontent  with  the  relatively  meager  stocks  of  the 
local  retailer,  and  proved  a  powerful  competitor  to 
the  small-town  storekeeper  who  found  in  the  neces- 
sity of  satisfying  all  his  customers'  wants  not  only  an 
opportunity  for  service  but  also  a  source  of  inher- 
ent weakness  that  plunged  him  into  a  struggle  for 
his  very  existence. 

7.  Appeal  of  the  mail-order  catalog. — It  is  com- 
monly thought  that  catalog  prices  are  low  prices  and 
that  the  low-price  appeal  is  the  chief  factor  in  mail- 
order competitive  strength.  It  is  not  clear  that 
either  of  these  suppositions  is  correct.  Many  inves- 
tigators believe  that  the  chief  strength  of  the  mail- 
order house  is  the  selling  power  of  the  catalog,  with- 
out regard  to  the  prices  at  which  goods  are  ordered. 


68 


MARKETING  AND  MERCHANDISING 


MAIL-ORDER  HOUSES 


69 


A  general  storekeeper  can  not  sell  the  many  things 
he  stocks;  he  is  too  busy  to  be  able  to  do  more  than 
fill  orders  to  satisfy  the  expressed  requirements  of 
his  customers,  A  mail-order  catalog,  on  the  other 
hand,  actually  sells  everything  in  its  line.  The  pic- 
tures and  descriptions  of  goods  are  attractive  and 
convincing.  Even  the  most  sophisticated  buyer  can 
with  difficulty  resist  the  appeal  of  a  well-written  and 
well-illustrated  catalog.  Turning  its  pages  is  like 
taking  a  shopping  tour  in  a  completely  stocked  store 
where  all  the  clerks  are  helpful  and  trained  sales- 
men and  where  the  eye  is  continually  caught  by 
some  new  article  designed  to  add  to  the  comfort, 
convenience,  or  luxury  of  the  dweller  on  the  farm 
or  in  the  small  town.  Here  is  the  real  appeal  of  the 
mail-order  house;  and  it  is  this  appeal,  too  little  re- 
garded by  the  country  dealer,  that  has  been  most  ef- 
fective in  radically  altering  methods  of  rural  mer- 
chandising. 

8.  A  national  business. — Another  advantage  of 
the  mail-order  house  is  the  fact  that  its  business  is 
often  national  in  scope.  No  purely  local  conditions 
of  business  depression  can  seriously  affect  its  sales. 

9.  Are  mail-order  prices  always  low? — It  can  not 
be  denied  that,  at  least  in  the  past,  mail-order  houses 
have  offered  some  goods  at  prices  lower  than  were 
offered  by  local  retailers.  It  is  the  price  appeal  of 
the  catalog  house  that  the  country  dealer  seems  to 
have  chiefly  feared  and  tried  to  combat,  and  it  is 
the  price  appeal  that  has  usually  been  put  forward 


as  the  chief  source  of  mail-order  strength.  Not  all 
catalog  prices  are  low.  Many  houises  get  higher 
prices  by  mail  than  the  local  retailer  gets.  Many 
others,  while  offering  most  of  their  goods  at  current 
figures,  give  the  impression  of  generally  low  prices 
by  prominently  pushing  carefully  selected  "loss  lead- 
ers"— standard  articles  purposely  offered  at  what  may 
be  a  real  loss  in  order  to  attract  trade  and  to  give 
a  coloring  of  low  prices  to  the  catalog  pages. 

10.  Causes  of  low  prices. — When  a  mail-order 
house  offers  consistently  low  prices  it  can  do  so  by 
passing  on  to  the  public  part  or  all  of  the  savings 
which  the  house  may  make  in  different  phases  of  its 
operation.  In  the  first  place  it  may  have  favorable 
relations  with  sources  of  supply  which  enable  it  to 
buy  at  less  cost  than  other  dealers.  In  the  second 
place  it  may  employ  efficient  business  methods  that 
decreases  operating  expenses.  Finally  it  may  pass 
on  to  consumers  savings  inherent  in  the  operation  of 
a  mail-order  establishment. 

Favorable  relations  with  sources  of  supply,  is 
usually  a  matter  of  buying  power.  Quantity  pur- 
chases reduce  unit  purchase  price.  Even  when  a 
particular  item  is  not  bought  in  large  quantities,  its 
manufacturer  may  be  induced  to  quote  a  special  price 
in  return  for  the  advertising  his  goods  will  get  in 
the  mail-order  catalog.  Because  of  its  extensive 
operations  a  large  mail-order  house  has  buying  con- 
nections in  all  important  markets;  it  is  in  a  position 
to  pick  up  at  favorable  figures  the  many  ''jobs"  and 


70 


MARKETING  AND  MERCHANDISING 


MAIL-ORDER  HOUSES 


71 


odd-lots  that  are  always  available  to  the  buyer  with 
ready  cash.  It  can,  too,  own  and  operate  its  factor- 
ies to  produce  items  that  are  in  large  demand  by  its 
customers.  All  these  opportunities  to  make  low  sell- 
ing prices,  it  should  be  noted,  are  not  exclusive  to  the 
mail-order  house.  They  result  mainly  from  size  of 
operation  rather  than  from  method  of  operation. 
The  retail  store  can  realize  these  same  opportunities, 
just  as  well  as  the  mail-order  house,  if  it  is  large 
enough.  The  mail-order  house  has  the  advantage 
because  it  is  usually  a  large  establishment,  while  the 
individual  small-town  store  is  to  a  certain  extent 
competitively  weak  because  it  is  small  in  contrast. 

11.  Operating  savings. — There  are  certain  operat- 
ing savings  inherent  in  the  business  of  a  mail-order 
house.  It  can  keep  down  overhead  by  operating 
outside  of  the  high-rent  district.  It  does  not  need 
an  expensive  location  in  the  heart  of  a  city;  all  it 
needs  is  a  building  to  house  warehouse  and  offices 
accessible  to  railroads  and  to  a  supply  of  labor.  Be- 
cause of  the  nature  of  its  operations,  the  bulk  of  its 
employes  may  be  recruited  from  a  lower-paid  class 
than  retail  store  salespeople,  trained  to  machine-ac- 
curacy in  routine  operations,  but  not  necessarily  pos- 
sessing the  characteristics  of  employes  who  have  come 
face-to-face  with  customers.  These  and  other  op- 
erating  savings  inherent  in  the  business  may  be  passed 
on  to  buyers  in  the  form  of  lower  selling  prices. 

Most  mail-order  houses  sell  for  cash  only.  They 
avoid  the  expenses  of  handling  a  large  number  of 


credit  accounts  and  escape  all  losses  from  bad  debts. 
This  gives  them  a  real  advantage  in  competition  with 
the  local  store  that  must  carry  its  customers  and 
must  recoup  its  credit  losses  by  getting  higher  prices 
from  those  who  pay  their  debts.  The  mail-order 
house  can  establish  a  strictly  cash  policy  and  lose  few 
sales  because  of  its  refusal  to  grant  credit;  while  the 
local  store  may  grant  credit  not  because  it  wants  to, 
but  because  it  fears  to  lose  trade  if  it  refuses.  More 
and  more  the  local  store  is  learning  to  grant  dis- 
counts for  cash  that  equalize  the  advantages  the  mail- 
order house  formerly  had  because  of  its  non-credit 
policy.  The  mail-order  house  does  not  need  to  carry 
large  stocks ;  customers  expect  to  wait  a  certain  time 
for  their  goods,  and  often  the  mail-order  house,  on 
receiving  a  customer's  order,  has  shipment  made 
direct  from  some  factory  to  the  customer  for  its 
account.  This  is  done  particularly  in  the  case  of 
bulky  goods,  and  the  saving  in  invested  capital  is 
considerable.  On  the  other  hand,  the  customer  of 
the  local  store  usually  expects  to  get  delivery  im- 
mediately out  of  the  store's  stock.  The  country 
storekeeper  is  gradually  teaching  his  trade  that  if 
they  will  permit  him  to  order  their  bulky  goods  only 
as  they  want  them,  he  can  give  just  as  quick  and  just 
as  cheap  service  as  the  mail-order  house. 

12.  Savings  from  efficient  management. — Effi- 
ciency of  operation  brought  about  by  trained  and 
highly  paid  management  has  in  the  past  resulted  in 
frequent  stock  turnover  in  some  mail-order  houses 


'  ^ 


f 


MARKETING  AND  MERCHANDISING 


that  coiild  not  be  matched  by  the  local  stores  with 
which  they  were  in  competition.  Perhaps  no  other 
one  thing  matches  frequent  stock  turnover  as  a  factor 
in  decreasing  selling  cost.  A  business  that  can  get 
back  every  dollar  of  its  stock  investment  ten  times 
a  year  can  afford  to  make  much  lower  prices  than  a 
business  that  gets  back  its  stock  investment  only 
once  or  twice  a  year.  This  is  merely  a  matter  of 
good  management,  however,  and,  if  the  mail-order 
house  has  this  advantage,  it  is  because  the  large 
mail-order  house  is  usually  run  more  efficiently  than 
the  average  small  general  store. 

13.  The  cost  of  selling  by  mail. — There  is  a  pre- 
vailing idea  that  selling  by  mail  is  less  expensive 
than  selling  over  the  counter.  It  is  true  that  there 
are  certain  savings  in  mail-order  operating  costs. 
It  is  not  true  that  actual  selling  costs  are  generally 
less  in  a  mail-order  house  than  in  a  small-town  retail 
store.  The  direct  selling  costs  in  a  retail  store  con- 
sist of  the  wages  of  the  buyers  and  salespeople  and 
the  cost  of  any  advertising  or  sales  promotion  in 
which  the  store  may  engage.  The  direct  selling 
costs  in  the  mail-order  house  consist  of  the  wages  of 
buyers  and  correspondents  and  the  very  heavy  ex- 
pense for  advertising.  The  largest  advertising  ex- 
pense is  usually  the  catalog,  and  this,  in  the  case  of 
large  establishments,  is  a  heavy  cost  indeed.  One 
mail-order  house  reports  an  annual  expense  of 
$6,000,000  for  catalogs  alone.  So  great  is  the  nee- 
essary  advertising  expense  that  it  usually  counteracts 


MAIL-ORDER  HOUSES 


73 


all  other  operating  savings.  In  1917  nine  mail-order 
houses  operating  nationally  showed  an  expense  of  do- 
ing business  ranging  from  sixteen  per  cent  to  twenty- 
six  per  cent  of  total  sales.  In  the  same  year  hardly 
any  well-managed  country  store  would  have  exceeded 
these  figures.  In  1920  and  1921  expenses  of  doing 
business  increased  greatly,  but  they  went  no  higher 
in  small-town  stores  than  they  did  in  mail-order 
houses.  The  fact  is  that  the  popular  idea  about  the 
economy  of  selling  by  mail  is  incorrect.  Generally 
speaking,  it  costs  just  as  much  to  sell  goods  by  mail 
as  it  does  to  sell  them  over  the  counter. 

14.  Lack  of  personal  contact. — The  growth  of  the 
mail-order  house  proves  that  it  has  had  certain  ad- 
vantages in  competing  with  small-town  stores.  The 
advantages  are  not  all  with  the  mail-order  house,  how- 
ever. The  lack  of  personal  contact  with  customers 
is  a  real  disadvantage.  People  like  to  do  business 
with  people.  A  store  with  courteous,  well-trained, 
intelligent  salespeople,  animated  by  a  spirit  of  help- 
fulness and  fair  dealing,  and  pervaded  by  the  per- 
sonality of  a  friendly,  wise,  and  liberal  owner,  can 
build  up  a  clientele  of  satisfied  customers  whose 
loyalty  to  the  store  and  its  owner  will  stand  the 
strain  of  the  most  alluring  appeal  of  the  catalog 
house. 

15.  Other  disadvantages  of  the  mail-order  house. 
— The  opportunity  to  inspect  goods  before  ordering 
them  is  provided  exclusively  by  the  local  store;  the 
suspicion  that  goods  may  not  actually  be  quite  as 


i 


I'  ^ 


i  I 


ARRETING  AND  MERCHANDISING 


f 


74 

described  in  a  catalog,  despite  a  money-back  guaran- 
tee, is  a  real  obstacle  to  ordering  by  mail.  If  goods 
bought  from  a  catalog  are  in  any  way  unsatisfactory, 
it  takes  time  and  patience  to  obtain  an  adjustment 
by  mail;  while  the  local  store  that  has  a  liberal  ad- 
justment policy  can  capitalize  it  to  its  own  advan- 
tage. The  prospect  of  delay  in  delivery  of  goods 
ordered  at  a  distance  blocks  many  mail-order  sales. 
To  justify  delivery  charges,  catalog  purchases  must 
frequently  be  in  larger  quantities  than  can  be  pur- 
chased economically  from  the  local  store.  In  this 
fact  lies  a  strong  competitive  advantage  for  the  store 
that  deals  with  many  people  whose  limited  means 
makes  it  impossible  for  them  to  anticipate  their  needs 
and  to  buy  for  anything  more  than  day-to-day  con- 
sumption. 

16.  Opportunity  of  the  local  store. — ^When  the 
mail-order  business  was  young,  many  retailers 
thought  they  could  meet  it  by  condemnation,  coer- 
cion, and  legislative  enactment.  The  mail-order 
house  was  spoken  of  as  an  illegitimate  intruder  in 
the  merchandising  field,  there  were  attempts  to  boy- 
cott manufacturers  who  cultivated  mail-order  out- 
lets, and  legislatures  were  induced  to  pass  laws  to 
hinder  mail-order  selling.  None  of  these  things 
was  successful.  People  continued  to  patronize 
catalog  houses,  and  the  catalog  houses  proved  their 
right  to  exist  by  constantly  increasing  the  number 
of  their  satisfied  customers  and  by  growing  rapidly 
in  strength  and  influence.     It  was  only  when  the 


MAIL-ORDER  HOUSES 


75 


local  retailer  learned  really  to  compete  with  them, 
that  the  trend  toward  the  new  method  of  rural  mer- 
chandising began  to  be  checked. 

17.  Growth  of  better  country  storekeeping. — The 
mail-order  house  has  taught  the  country  dealer  to  be 
a  better  merchant.  He  has  learned  the  necessity  of 
carrying  a  better  selected  stock,  getting  greater  turn- 
over in  order  to  keep  down  prices,  displaying  his 
goods  to  better  advantage,  training  his  salespeople 
to  give  helpful  information  to  buyers,  and,  above 
all,  he  has  learned  from  the  mail-order  houses  to 
make  his  advertisements  something  more  than  mere 
contributions  to  the  support  of  the  local  newspaper. 
Nearly  every  country  community  today  has  at  least 
one  modern,  progressive,  intelligently  conducted 
store  where  the  customer  can  ^satisfy  his  wants 
quickly,  conveniently,  and  economically,  and  where 
he  can  get  more  accommodation  and  service  than  he 
can  expect  from  the  distant  mail-order  house. 

18.  What  happened  in  1921. — The  chief  influences 
tending  to  make  the  country  general  store  a  stronger 
competitive  factor  have  been  discussed  in  the  chapter 
on  "The  Local  Retailer."  These  influences  were 
operating  for  many  years  prior  to  the  end  of  the 
great  upward  movement  of  commodity  prices.  The 
year  1921  added  a  factor  of  strength  to  the  country 
store.  In  1921  the  great  mail-order  houses,  in  com- 
mon with  many  other  lines  of  business,  suffered 
from  the  "buyers'  strike."  This  was  followed  by  a 
decrease  in  the  purchasing  power  of  farmers.     The 


» 


76 


MARKETING  AND  MERCHANDISING 


MAIL-ORDER  HOUSES 


77 


dependence  on  a  single  class  of  customers  proved  an 
important  source  of  economic  weakness  for  the  mail- 
order house.  A  still  more  important  occurrence  in 
1921  was  the  passing  of  the  peak  of  high  prices  and 
the  beginning  of  the  low  swing  downward  in  the 
cycle  of  commodity  prices.  An  immediate  result  was 
the  large  depreciation  of  inventories  with  its  attend- 
ant losses.  This  misfortune  was  not  experienced 
by  mail-order  houses  alone.  Declining  prices  do, 
however,  affect  the  mail-order  houses  in  a  unique 
way. 

19.  Changing  prices  and  their  effect  on  mail-order 
houses. — We  have  seen  that  the  catalog  house  began 
to  be  an  important  competitive  factor  following  the 
beginning  of  the  upward  movement  of  prices  in  1895. 
A  mail-order  catalog  is  usually  issued  once  every 
year  or  every  six  months.  With  rising  prices,  the 
mail-order  catalog  that  is  several  months  or  years 
old  is  an  effective  advertisement  of  lower  prices  than 
the  local  dealer,  buying  frequently  and  as  frequently 
adjusting  his  selling  prices  to  the  rising  market,  can 
offer  to  his  trade.  With  the  beginning  of  a  down- 
ward  trend  of  prices  the  situation  was  radically 
changed.  The  local  dealer,  buying  in  small  quanti- 
ties and  constantly  alert  to  give  his  customers  the  ad- 
vantage of  every  declining  market,  can  frequently 
offer  goods  below  the  prices  shown  in  a  mail-order 
catalog  that  has  been  in  print  for  even  a  few  months. 
In  a  falling  market  there  is  not  time  to  get  out  a 


voluminous  mail-order  catalog  and  to  ship  it  all  over 
the  country  before  there  is  a  drop  in  prices  that 
makes  every  outstanding  catalog  an  advertisement 
of  prices  higher  than  those  that  the  progressive  lo- 
cal dealer  can  offer. 

20.  Future  of  the  mail-order  house. — Should  fall- 
ing prices  continue  for  some  time  to  come,  it  would 
without  any  question  mean  increasing  difficulty  for 
the  mail-order  house  and  increasing  opportunity  for 
the  wide-awake  country  retailer.  It  would  take  all 
the  buying  power  of  the  catalog  house  and  all  the 
economies  of  operation  of  which  it  is  capable  to  en- 
able it  to  maintain  a  price  advantage  in  view  of 
the  new  conditions  that  would  come  as  a  result 
of  such  continued  readjustment  of  price  levels. 
•  The  mail-order  houses  must  adopt  new  methods. 
We  are  likely  to  see  fewer  large  seasonal  catalogs, 
and  more  smaller  departmental  offerings  published 
at  frequent  intervals.  It  is  possible  that  the  mail- 
order house  will  cease  to  appeal  chiefly  on  a  price 
basis  and  will  emphasize  more  than  in  the  past  the 
quality  of  its  goods  and  the  great  range  of  styles  and 
sizes  that  it  can  offer.  By  carrying  fewer  staple 
lines  and  concentrating  its  purchasing  power  on 
"jobs"  and  special  offers,  it  may  seek  to  maintain  its 
former  price  advantage.  It  may  be  forced  to  make 
fewer  deliveries  from  stock,  and  to  build  up  more  of 
a  brokerage  business  in  order  to  avoid  the  heavy 
risk  of  loss  from  depreciation  of  inventories.     Or,  in 


<\>i 


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MARKETING  AND  MERCHANDISING 


MAIL-ORDER  HOUSES 


79 


other  ways,  it  may  alter  its  former  procedure  to 
maintain  its  position  while  harmonizing  its  activities 
with  changed  conditions. 

The  mail-order  house  is  too  firmly  established  to 
be  forced  from  a  position  of  permanent  importance  in 
merchandising.  It  will,  however,  find  it  necessary 
to  change  many  of  its  policies  and  methods,  and  the 
local  dealer  alive  to  his  opportunities  will  find  him- 
self in  a  new*  position  of  strength  to  get  his  share  of 
the  trade  in  competition  with  the  force  that  has  for 
so  many  years  been  a  greatly  disturbing  factor  in 
rural  trade. 

21.  Wholesale  selling  by  mail. — Much  of  what  has 
been  said  in  this  chapter  about  the  retail  mail-order 
business  applies  equally  to  wholesale  selling  by  mail. 
The  growth  of  the  mail-order  jobber  has  been  coin- 
cident with  the  growth  of  the  mail-order  retailer.  A 
few  jobbing  houses  sell  entirely  by  mail.  Many 
more  issue  catalogs  to  supplement  the  work  of  sales- 
men. The  catalog  enables  the  jobber  to  reach  iso- 
lated districts  where  traveling  is  expensive  and  diffi- 
cult. It  gets  plus  business  for  the  jobber  by  acting 
the  part  of  a  silent  salesman  at  the  very  moment 
when  the  retailer  realizes  a  need  for  additional  goods. 
It  encourages  dealers  to  turn  their  stock  more  fre- 
quently by  ordering  often  and  in  small  quantities. 
Despite  the  very  large  success  of  certain  wholesale 
houses  selling  exclusively  by  mail,  chiefly  to  country 
general  stores,  this  method  of  wholesale  distributing 
is  not  likely  to  affect  seriously  the  business  of  other 


types  of  jobbers,  because  of  the  real  aid  which  the 
traveling  salesman  can  offer  to  his  customers  and  be- 
cause of  the  long-established  liking  of  retailers  for 
buying  in  the  market  or  from  salesmen  who  carry 
their  samples  with  them.  The  use  of  catalogs  in 
conjunction  with  the  use  of  salesmen,  however,  offers 
opportunities  for  increased  business  which  whole- 
sale houses  are  more  and  more  realizing.  Selling  by 
mail  is  here  to  stay,  and  manufacturers  and  whole- 
sale houses  as  well  as  retailers,  who  wish  to  develop 
every  opportunity  for  increased  business,  will  more 
and  more  utilize  its  aid  in  building  up  their  trade. 

REVIEW 

What  kinds  of  business  houses  engage  in  mail-order  selling? 
What  are  the  influences  which  are  responsible  for  the  develop- 
ment of  mail-order  selling? 

Discuss  prices  in  mail-order  selling. 

What  savings  are  secured  by  the  mail-order  house? 

Compare  the  costs  of  selling  by  mail  with  over-the-counter 

selling. 

How  may  the  small-town  stores  compete  successfully  against 

the  mail-order  houses? 

Discuss  the  eff*ect  of  recent  price  changes  on  mail-order  selling. 


II' 


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I 


THE  JOBBER  AND  HIS  STATUS 


81 


I 


! 


I  ill 


CHAPTER  VI 

THE  JOBBER  AND  HIS  STATUS 

1.  Jobber's  service  little  understood. — We  have 
defined  a  jobber  or  wholesaler  as  one  who  buys, 
usually  in  quantities,  for  the  purpose  of  selhng  the 
same  goods  again  without  alteration  to  other  dealers. 
The  consumer  seldom  knows  him.  Partly  because 
of  the  consumer's  lack  of  contact  with  the  jobber  and 
the  resulting  general  ignorance  of  the  jobber's  ser- 
vice, a  suspicion  has  arisen  that  his  service  is  uneco- 
nomical and  not  worth  its  cost  to  society.  When  the 
middleman  is  attacked,  it  is  usually  the  jobber  who 
has  to  bear  the  brunt  of  the  criticism.  No  one  can 
understand  modern  marketing  who  does  not  under- 
stand what  the  jobber  does  for  manufacturers,  re- 
tailers, and  consumers,  and  the  place  he  holds  in  the 
distribution  of  many  great  lines  of  staple  products. 

2.  What  are  jobbing  lines? — Not  all  manufactured 
goods  are  sold  thru  jobbers.  In  some  lines  the  job- 
ber is  losing  importance;  in  others  he  never  was  im- 
portant. In  many  others,  however,  he  still  main- 
tains the  important  position  he  has  held  ever  since 
the  market  for  a  factory's  output  ceased  to  be  con- 
fined to  a  small  circle  of  nearby  consumers.  The 
jobber  finds  his  chief  field  for  usefulness  in  serving 

80 


that  type  of  retailer  who  stocks  a  large  variety  of 
different  kinds  of  goods,  produced  by  many  different 
manufacturers.  His  place  is  most  secure  when  the 
retailer's  unit  of  purchase  of  each  kind  of  goods  is 
relatively  small.  Lines  of  goods  that  have  these 
characteristics  are  normally  known  as  jobbing  lines- 
Outstanding  examples  are  groceries,  drugs,  dry- 
goods,  and  hardware.  Not  all  goods  in  these  lines 
are  sold  thru  jobbers,  nor  are  these  lines  the  only 
ones  in  which  the  jobber  maintains  an  important 
position.  It  is  in  these  fields,  however,  that  the 
jobber's  position  can  be  most  clearly  defined,  and  it 
is  these  fields  and  others  similar  to  them  that  we  shall 
have  in  mind  in  discussing  the  service  and  the  status 
of  the  wholesale  distributor. 

8.  What  is  the  jobber's  pay? — ^Does  the  jobber 
earn  his  pay?  His  share  in  the  spread  between 
manufacturer's  selling  price  and  consumer's  buying 
price  is  not  so  great  as  is  often  supposed.  There  are 
lines  in  which  the  jobber's  gross  profit  is  less  than 
ten  per  cent  of  his  total  sales.  Other  lines  allow  the 
jobber  a  gross  profit  up  to  twenty-five  per  cent  or 
even  higher.  Figures  are  not  available  to  show  the 
average  jobber's  gross  profit  on  all  lines  of  goods, 
but  probably  it  is  not  greatly  in  excess  of  fifteen  per 
cent.  Out  of  this  he  must  pay  the  expenses  of  con- 
ducting his  business,  he  must  earn  a  return  on  the 
capital  invested,  and  he  must  have  something  left  as 
net  profit  if  he  is  to  continue  to  run  the  risks  of  his 
calling.    If  the  net  is  as  high  as  three  per  cent,  the 


il 


82         MARKETING  AND  MERCHANDISING 

average   jobber   considers   himself   very    fortunate. 
Usually  the  net  return  is  much  less. 

It  must  not  be  supposed  that  the  jobber's  com- 
pensation constitutes  an  addition  to  the  consumer's 
buying  price  which  could  be  eliminated  if  the  jobber 
were  to  cease  to  operate.  The  things  the  jobber  does 
would  have  to  be  done  by  some  one  else — the  manu- 
facturer or  the  retailer — if  the  jobber  did  not  do 
them,  and,  regardless  of  who  did  them,  they  would 
cost  money.  The  friends  of  the  jobber  contend  that 
the  latter  can  do  these  things  more  effectively  and 
more  economically  than  any  one  else,  and  that  the  job- 
ber's services,  therefore,  instead  of  being  a  tax  on 
society  are  a  contributing  cause  of  the  maintenance 
of  minimum  prices  to  the  consumer.  The  jobber 
serves  the  manufacturer,  the  retailer,  and  the  con- 
sumer. We  shall  briefly  inspect  each  phase  of  this 
service. 

4.  Jobber  is  specialist  in  marketing. — From  the 
manufacturer's  standpoint,  the  service  rendered  by 
the  jobber  is  that  of  a  specialist  in  marketing.  The 
jobber  is  in  business  solely  to  buy  and  sell  goods. 
He  knows  the  trade  intimately;  he  knows  the  de- 
mand and  how  to  satisfy  it;  he  knows  what  will  sell 
and  what  will  not  sell ;  he  has  a  clientele  of  relatively 
permanent  customers ;  he  provides  a  ready-made  mar- 
ket for  the  goods  of  the  manufacturer  who  can  ob- 
tain his  cooperation.  Many  manufacturers,  partic- 
ularly the  smaller  ones,  are  not  skilled  in  marketing, 
and  they  find  it  cheaper  to  use  the  jobber's  services 


THE  JOBBER  AND  HIS  STATUS 


83 


than  to  attempt  the  expensive  process  of  studying  and 
reaching  the  retail  trade  without  the  jobber's  help. 

5.  Jobber  has  ready-made  sales  force. — Allied  with 
this  service  is  that  which  the  jobber  offers  in  pro- 
viding a  ready-made  sales  force  for  the  manufac- 
turer's goods.  There  are  approximately  300,000  food 
retailers  in  the  United  States.  Every  one  of  them  is 
visited  frequently  by  one  or  more  of  the  many  thou- 
sands of  jobbers'  salesmen.  If  a  manufacturer  of  a 
food  product  were  to  attempt  to  sell  direct  to  all  re- 
tail grocers,  he  would  probably  need  500  or  more 
salesmen.  On  the  other  hand,  if  he  used  the  jobbers' 
selling  forces  and  confined  his  own  sales  activities  to 
keeping  the  wholesale  trade  in  line,  he  could  possibly 
get  along  with  as  few  as  fifty  salesmen.  The  enor- 
mous difference  in  expense  to  the  manufacturer  be- 
tween these  two  methods  of  marketing  is  obvious. 

6.  Jobber  cultivates  market  intensively. — For 
many  manufacturers  the  jobber  can  afford  to  culti- 
vate the  market  much  more  intensively  than  the 
manufacturer  could  afford  to  cultivate  it  for  him- 
self. A  manufacturer  making  only  a  single  article, 
sold  to  dealers  in  limited  quantities  at  a  time  and  at 
a  low  price,  could  not  afford  to  call  on  small  dealers 
or  go  into  small  towns.  His  sales  to  each  dealer  or 
in  each  town  would  not  pay  his  expenses.  The  job- 
ber's salesman,  however,  may  deal  in  a  hundred  or  a 
thousand  articles.  His  individual  sales  of  any  one 
manufacturer's  product  may  be  small,  but  the  order 
for  that  product  is  part  of  an  order  for  many  other 


h 


#(l) 


84         MARKETING  AND  MERCHANDISING 

things,  and  the  total  sale  to  each  dealer  even  in  a  very 
small  community  pays  a  large  enough  gross  profit  to 
justify  the  expense  of  the  solicitation.  There  is 
hardly  a  dealer  so  small  that  he  is  not  visited  fre- 
quently by  several  jobbers'  salesmen. 

7.  Storage  service.— Reisalers  are  rapidly  learn- 
ing the  advantage  of  keeping  their  stocks  as  small  as 
possible  so  that  the  ratio  of  sales  to  average  stock 
carried  may  be  high.  To  get  a  high  turnover  they 
wish  to  purchase  frequently  and  in  small  quantities. 
In  some  lines  the  perishable  nature  of  the  goods  adds 
another  inducement  for  small  and  frequent  pur- 
chases. To  make  this  kind  of  purchasing  possible 
there  must  be  many  centrally  located  wholesale  ware- 
houses. If  the  manufacturer  sold  direct  to  the  re- 
tailer, he  would  have  to  maintain  such  warehouses 
himself.  By  dealing  thru  jobbers  he  is  saved  this 
expense.  The  warehousing  function  is  one  of  the 
most  important  and  expensive  of  the  jobber's  services 
to  manufacturers  and  retailers. 

8.  Service  in  carrying  account. — The  jobber  frees 
the  manufacturer  from  the  problem  of  credits  to  re- 
tailers. Deahng  with  thousands  of  retailers  involves 
considerable  expense  for  bookkeeping,  for  the  adjust- 
ment of  credit  relations,  and  for  collecting,  while 
losses  from  bad  debts  can  not  be  avoided.  The 
manufacturer  who  deals  only  with  jobbers,  greatly 
reduces  his  credit  risk  and  cuts  his  accounting  and 
clerical  expenses  to  a  minimum. 


THE  JOBBER  AND  HIS  STATUS 


85 


I 


ili'l 


9.  Variations  in  jobber's  service.— Not  all  manu- 
facturers who  deal  thru  jobbers  will  use  all  the  kinds 
of  service  that  the  jobber  is  prepared  to  offer.     For 
example,  the  warehousing  service  is  sometimes  dis- 
pensed with— orders  are  taken  by  the  jobber's  sales- 
men, but  the  orders  are  filled  by  "drop  shipments" 
made  direct  to  the  retailer  by  the  manufacturer. 
These  shipments  are  billed  by  the  manufacturer  to  the 
jobber,  and  the  jobber  takes  full  responsibility  for 
collecting  from  the  retailer.     Some  manufacturers, 
while  using  the  jobber's  sales  force  for  the  bulk  of 
business   from  retailers,    also   send  out   their   own 
missionary  salesmen  to  the  retail  trade  to  encourage 
interest  in  the  manufacturer's  goods  or  to  help  the 
jobber's  salesmen  in  their  efforts  to  sell.    If  a  mission- 
ary salesman  takes  an  order,  it  is  put  thru  some 
jobber  designated  by  the  retailer;  the  jobber  assumes 
responsibility  for  it,  fills  it  perhaps  from  his  own 
stock,  makes  the  collection,  and  takes  his  regular 
profit  on  the  transaction.     Besides  these  two  modi- 
fications of  the  ordinary  method  of  selling  thru  a 
jobber,  which  are  frequent,  there  are  other  ways  in 
which  manufacturers  may  vary  the  usual  form  of 
jobber's   services.     Nevertheless  the   jobber  staftds 
ready  to  give  the  kinds  of  service  that  have  been 
enumerated.     That  the  service  is  worth  its  cost  and 
that  in  many  cases  the  manufacturer  himself  could 
not  perform  the  same  service  so  effectively  or  so 
economically  is  proved  by  the  strategic  position  that 


; 


X-' 


,BBsiiiaariilliii»- 


86         MARKETING  AND  MERCHANDISING 

the  jobber  continues  to  occupy  in  the  marketing  of 
many  kinds  of  manufactured  goods. 

10.  How  jobber  serves  retailer. — In  so  far  as  the 
chain  store  has  developed,  the  importance  of  the 
jobber  to  certain  kinds  of  retailers  has  been  reduced. 
Chain-store  organizations  usually  buy  direct  from  the 
manufacturer,  but  they  control  only  a  limited  amount 
of  retail  distribution.  Even  in  large  cities  the  small 
independent  neighborhood  store  continues  to  flourish, 
and  in  smaller  communities  the  independent  retailer 
will  perhaps  always  be  the  dominant  factor  in  mer- 
chandising. 

The  existence  of  most  stores  of  this  type  is 
made  possible  by  the  service  offered  by  the  jobber. 
Consider,  for  example,  a  small  neighborhood  grocery 
store.  It  may  have  on  its  shelves  1,000  or  more 
different  kinds  and  brands  of  goods,  the  products  of 
several  hundred  different  manufacturers.  The  store 
has  been  buying  its  stock  chiefly  from  three  or  four 
jobbers.  Now  let  us  suppose  that  all  the  jobbers 
were  eliminated;  that  the  retail  merchant  had  to 
buy  every  item  in  his  stock  direct  from  the  manufac- 
turers, and  let  us  try  to  figure  out  what  would  hap- 

11.  Difficulty  in  keeping  complete  and  well- 
balanced  stocks. — The  retailer  would  find  it  difficult 
to  keep  complete  stocks.  Without  the  friendly  help 
of  a  jobber's  salesman  and  without  an  elaborate  and 
expensive  system  of  stock  records,  the  necessity  of 
constantly    reordering    from    many    manufacturers 


THE  JOBBER  AND  HIS  STATUS 


87 


would  be  a  real  obstacle  to  the  carrying  of  complete 
stocks.     It  would  be  even  more  difficult  for  the  re- 
tailer to  carry  a  well-selected  and  well-balanced  stock. 
It  is  to  the  jobber's  interest  to  see  that  his  customer 
does  not  order  too  much  of  one  thing  and  too  little  of 
another,  because  the  jobber's  success  depends  on  the 
retailer's  success.    Without  the  jobber,  the  retailer 
would  be  importuned  constantly  by  the  horde  of 
manufacturers'  salesmen  to  stock  large  quantities  of 
one  line  at  the  expense  of  other  lines  that  he  ought  to 
carry.     An  unbalanced  stock  would  inevitably  result. 
The  jobber  ordinarily  does  not  push  any  one  kind  of 
goods.     He  tries  to  build  up  the  retailer's  business 
as  a  whole,  and  he  renders  valuable  service  by  aid- 
ing him  with  all  kinds  of  buying  and  selling  plans. 

It  is  not  to  be  expected  that  a  multitude  of  compet- 
ing manufacturers  would  be  governed  in  their  selling 
by  the  same  solicitude  for  the  individual  retailer's 
continued  success  that  the  jobber  must  feel.  Allied 
with  the  difficulty  of  keeping  complete  and  well- 
balanced  stocks,  which  would  follow  the  elimination  of 
the  jobber,  would  be  another  very  serious  difficulty. 
The  actual  time  spent  in  seeing  the  salesmen  of 
several  hundred  manufacturers  or  in  ordering  from 
their  catalogs  would  be  enormous.  With  the  jobber 
eliminated,  only  the  largest  stores,  employing  many 
responsible  buyers,  could  survive. 

12.  Need  of  capital. — In  many  lines  the  retailer 
dealing  direct  with  the  manufacturer  would  have  to 
purchase  in  larger  quantities  than  if  he  bought  from 


1i 


oo 


MARKETING  AND  MERCHANDISING 


THE  JOBBER  AND  HIS  STATUS 


89 


if!*! 


the  jobber,  because  the  solicitation  of  small  orders 
would  not  pay  the  small  one-line  manufacturer.  The 
dealer  would  require  larger  capital  than  is  now  needed 
in  his  business.  He  would  need,  too,  increased 
storage  space  to  take  care  of  increased  stocks.  All 
this  would  be  reflected  in  increased  costs  of  doing 
business,  slower  turnover  of  capital,  and  either  de- 
creased profits  to  himself  or  increased  prices  to  his 
customers. 

13.  Credit  arrangements. — ^Finally,  with  the  elimi- 
nation of  the  jobber,  thousands  of  retailers  would 
have  to  close  their  doors  because  of  the  cessation  of 
credit  arrangements  that  enable  them  to  exist.  The 
jobber  is  often  the  retailer's  banker ;  with  faith  in  the 
retailer's  ability  to  succeed,  the  jobber  gives  him  a  line 
of  credit  based  on  confidence  in  his  character  and  his 
business  ability,  nurses  him  along  until  he  gets  on  his 
feet,  and  at  many  crises  in  the  retailer's  business 
history  extends  the  helping  hand  of  credit  and  con- 
fidence. With  the  withdrawal  of  the  jobber  and  with 
the  keen  desire  of  many  competing  manufacturers  to 
get  their  money  without  delay  and  without  risk  of 
loss,  many  thousands  of  retailers  would  find  it  im- 
possible to  steer  their  business  barks  thru  the  difficult 
waters  of  finance. 

14.  Struggle  for  survival. — The  conditions  that  the 
retailer  would  have  to  face  with  the  elimination  of  the 
jobber,  show  clearly  that  for  the  small  dealer  in  so- 
called  jobbing  lines,  at  least,  the  jobber  is  an  absolute 
necessity.    Without  the  jobber  a  large  proportion, 


possibly  fifty  per  cent,  of  all  retailers  would  have  to 
drop  out  of  business,  and  the  field  would  be  left  to 
those  who  are  large  enough  and  strong  enough  and 
backed  by  sufficient  capital  to  do  for  themselves  the 
things  that  the  jobber  now  does  for  them.  To  be 
sure,  cooperative  buying  does  for  some  what  the 
jobber  would  otherwise  do,  but  whatever  substitute  is 
offered  for  the  jobber,  it  should  be  understood  that 
the  services  performed  by  the  jobber  involve  a  certain 
expense,  and  that  that  expense  remains  about  the 
same  regardless  of  who  performs  the  services. 

15.  When  jobber  is  necessary. — It  is  well  to  re- 
member that  all  that  has  been  said  in  this  chapter 
applies  only  to  retail  lines  in  which  the  jobbing 
function,  because  of  the  nature  of  the  business,  is 
essential  to  the  small  dealer.     If  a  store  can  buy  its 
entire  stock  of  goods  from  a  few  manufacturers,  the 
service  of  the  jobber  is  not  vital  to  the  industry.     If 
in  such  lines  the  jobber  exists  at  all  he  does  so  because 
of  tradition,  because  he  has  learned  to  operate  more 
cheaply  than  the  direct-selling  manufacturer,  or  be- 
cause for  some  other  reason  the  retailer  prefers  to 
deal  with  the  jobber  rather  than  with  the  manu- 
facturer.    It  should  also  be  remembered  that  we 
are  not  considering  the  advantages  and  disadvantages 
of  the  present  system  of  multitudinous  small  stores 
scattered  everywhere  thruout  the  country,  and  of  the 
present  system  of  independent,  strictly  competitive, 
relatively    small   manufacturing   imits.     Those    are 
the  conditions  under  which  we  are  operating,  and 


i 


*.,. 


90 


MARKETING  AND  MERCHANDISING 


THE  JOBBER  AND  HIS  STATUS 


91 


under  them  it  can  not  be  denied  that  the  jobber  is 
often  essential  to  the  existence  of  the  average  retail 
store  in  many  staple  lines. 

16.  Jobber's  service  to  consumer. — Finally,  the 
jobber  serves  the  consumer.  He  permits  the 
existence  of  the  convenient  neighborhood  store ;  he  is 
useful  in  creating  time  and  place  utility ;  he  provides 
an  economical  method  of  marketing  for  many  manu- 
facturers, and  thereby  helps  to  keep  down  prices ;  he 
encourages  retail  competition,  increases  retail  ef- 
ficiency, tends  to  weed  out  the  unfit  in  merchandise 
and  to  encourage  the  sale  of  goods  of  quality.  He 
touches  the  lives  of  the  public  in  such  a  variety  of 
ways  that,  if  he  were  to  disappear  from  the  merchan- 
dising field,  we  should  find  ourselves  seriously  incon- 
venienced; we  should  have  to  abandon  old  buying 
habits  and  form  entirely  new  relations  with  the 
sources  of  supply  of  many  of  the  things  that  we  eat 
and  wear  and  use. 

17.  Jobber  not  to  be  eliminated. — In  spite  of  the 
forms  of  service  that  the  jobber  is  prepared  to  offer  to 
manufacturers,  retailers,  and  consumers,  there  is  a 
constantly  increasing  number  of  manufacturers  who 
decline  in  whole  or  in  part  to  take  advantage  of  the 
jobber's  services  and  a  growing  body  of  retailers  who 
prefer  to  make  their  purchases  direct  from  the  manu- 
facturer. We  are  to  consider  the  jobber's  changing 
status  first  from  the  standpoint  of  the  retailer  and 
then  from  the  point  of  view  of  the  manufacturer,  but, 
in  doing  so,  it  is  well  always  to  bear  in  mind  that. 


regardless  of  the  possible  changes  in  the  strength  of 
his  position,  the  jobber  can  not  be  eliminated  from  our 
merchandising  system.  He  may  disappear  from 
some  kinds  of  business,  and  his  functions  in  others 
may  be  greatly  changed,  but  as  an  important  factor 
in  many  industries  he  must  necessarily  continue  as 
long  as  we  operate  under  our  present  system  of 
competitive  merchandising. 

18.  Increased  buying  power  of  retailers. — ^Why  is 
the  retailer  seeking  more  and  more  to  make  his 
purchases  direct  from  the  manufacturer?  The  most 
important  reason  is  probably  the  increased  size  of 
some  retail  buying  units.  The  retailer  who  can  buy 
in  large  quantities  naturally  demands  the  same  price 
at  which  the  manufacturer  would  sell  equal  quantities 
to  the  jobber.  He  seeks  the  jobber's  profit  for  him- 
self. Large  specialty  stores,  department  stores, 
chain-store  organizations,  and  the  great  mail-order 
houses  can  all  buy  in  such  large  units  that  they  are 
willing  to  forego  the  jobber's  services  in  order  to  get 
minimum  quantity  prices  for  themselves. 

19.  Pressure  of  competition. — To  compete  with 
these  large  direct-buying  establishments,  small  re- 
tailers at  times  form  cooperative  buying  exchanges 
which  demand  from  manufacturers  on  their  pooled 
purchases  the  same  prices  that  are  obtained  by  the 
larger  retail  organizations  buying  individually. 
AVhen  a  single  retailer  or  a  group  of  retailers  demand 
direct  buying  connections  on  the  strength  of  their 
buying  power,  they  consciously  abandon  the  old  idea 


92 


MARKETING  AND  MERCHANDISING 


THE  JOBBER  AND  HIS  STATUS 


93 


that  there  should  be  certam  prices  to  jobbers  because 
they  are  jobbers  and  other  prices  to  retailers  because 
they  are  retailers ;  they  set  up  the  relatively  new  idea 
that  the  only  basis  of  price  differentiation  should  be 
the  quantity  purchased,  regardless  of  whether  it  is 
jobber,  retailer,  or  consumer  who  buys  that  quantity. 

20.  Ease  of  buying  direct. — Retailers  are  encour- 
aged m  their  attempt  to  purchase  direct  by  the  in- 
creased ease  of  dealing  with  the  manufacturer.  The 
number  of  manufacturers'  salesmen  calling  upon  re- 
tailers is  constantly  increasing ;  facilities  for  the  quick 
and  cheap  transportation  of  even  small  shipments 
direct  from  factory  to  store  are  much  better  than  for- 
merly ;  and  the  possibility  of  ordering  frequently  and 
conveniently  by  mail  from  the  manufacturer  is  being 
reaUzed  more  than  ever  before. 

21.  Retailers  know  sources  of  supply. — The  rap- 
idly growing  practice  among  consumers  of  buying 
goods  by  brand  names  encourages  the  retailer  to  think 
of  the  manufacturer  rather  than  the  jobber  as  the 
natural  source  of  supply.  As  long  as  consumers 
asked  simply  for  flour,  the  dealer  did  not  pay  much 
attention  to  brands  and  manufacturer;  he  bought 
usually  on  a  price  and  quality  basis  from  the  jobber. 
But  when  his  customers  began  to  ask  for  some  par- 
ticular brand  of  flour,  the  manufacturer's  instead  of 
the  jobber's  name  naturally  occurred  to  the  retailer 
when  he  thought  of  ordering.  National  advertising 
has  made  the  manufacturer  known  to  the  retailer. 

22.  Some  lines  not  sold  by  jobbers. — Some  manu- 


factured lines  have  developed  in  such  a  way  that  they 
are  no  longer  generally  handled  by  jobbers.  Ready- 
to-wear  clothing,  for  instance,  is  not  commonly  con- 
sidered a  profitable  jobbing  line.  When  goods  cease 
to  be  profitable  to  the  jobbers,  the  jobbers  abandon 
them  or  become  manufacturers  on  their  own  account, 
and  the  retailer  is  forced  to  buy  from  the  manufac- 
turer. 

23.  Why  manufacturer  sells  direct. — "SeUing  di- 
rect" in  trade  parlance  ordinarily  means  going  over 
the  jobber's  head  and  selling  direct  to  the  retailer. 
The  manufacturer's  declaration  of  independence  of 
the  jobber  is  partly  due  to  the  fact  that  some  jobbers 
have  departed  from  the  old  jobbing  functions  and 
have  undertaken  or  abandoned  certain  activities  in  an 
effort  to  strengthen  their  position..  The  result  of 
this  change  in  functions  will  be  considered  in  a  later 
chapter  on  the  "Private  Brand  Problem."  We  are 
here  concerned  with  those  reasons  for  selling  direct 
that  apply  to  the  old-hne  jobber  who  has  not  varied 
his  activities  from  the  traditional  model. 

24.  Jobber  s  inability  to  push  one  line. — A  recent 
catalog  of  a  wholesale  grocer  contained  over  6,000 
items  divided  among  724  different  kinds  of  goods. 
Among  them,  for  instance,  were  102  brands  of  coffee, 
30  different  kinds  of  coffee  substitutes,  84  makes  of 
canned  beans,  and  75  kinds  of  cigars.  Obviously  the 
amount  of  real  salesmanship  that  can  be  put  behind 
any  one  manufacturer's  goods  by  the  jobber's  sales- 
men is  very  limited.     They  can  not  know  the  selling 


I! 


HA 


MARKETING  AND  MERCHANDISING 


THE  JOBBER  AND  HIS  STATUS 


95 


points  of  more  than  a  small  part  of  all  the  things 
they  are  supposed  to  sell.  The  physical  necessities 
of  the  case  compel  the  jobber  to  say,  in  effect,  to 
the  retailer:  "Here  are  many  different  brands  of 
the  same  kind  of  goods.  They  are  all  good,  or  I 
should  not  be  handling  them.  Take  your  choice." 
He  can  not  in  fairness  push  one  brand  at  the  ex- 
pense of  other  competing  brands  that  he  may 
carry — and  he  must  normally  carry  competing  brands 
because  he  is  in  business  to  serve  the  retailer  with  the 
kinds  of  goods  that  the  retailer  and  the  retailer's  cus- 
tomers want  to  buy.  Altho  this  situation  can  not  be 
avoided,  it  is  unsatisfactory  to  the  manufacturer  who 
wants  real  salesmanship  put  behind  the  sales  of  his 
particular  goods  to  the  retail  trade.  This  is  an  im- 
portant reason  for  "going  direct"  to  the  retailer. 

25.  Desire  to  keep  close  to  the  market. — ^When  a 
manufacturer  produces  goods  for  a  national  market 
he  is  often  not  content  simply  to  secure  a  large  volume 
of  sales.  He  measures  his  progress  not  merely  by  ac- 
tual sales,  but  also  by  the  relation  between  actual 
sales  and  sales  possibilities.  To  determine  sales  pos- 
sibilities he  must  study  each  local  community  and  set 
a  mark  for  his  sales  in  that  community.  All  this 
means  that  the  modern  manufacturer  seeking  the 
largest  possible  volume  of  business  must  follow  his 
distribution  all  the  way  down  thru  different  classes  of 
distributors  to  the  final  consumer  in  order  to  be  sure 
that  he  is  making  the  strongest  possible  appeal  in 
each  community  to  the  largest  possible  group  of  con- 


sumers.    Close  study  of  the  market,  definite  plans 
for  reaching  all  parts  of  the  market,  and  constant 
comparison    between    possibilities    and    results    are 
characteristic  of  modern  intensive  sales  management. 
When  a  manufacturer  deals  thru  jobbers,  he  has  no 
definite  knowledge  of  where  his  goods  finally  go  into 
consumption.     His  total  sales  to  Chicago  jobbers, 
for  example,  may  increase  or  decrease,  but  Chicago 
jobbers  operate  over  a  wide    territory,  and  it  is  by 
no  means  certain  that  sales  to  retailers  in  the  city  of 
Chicago  can  be  measured  by  the  manufacturer's  sales 
to  jobbers  in  that  city.     The  inability  to  follow  goods 
clear  thru  to  the  point  of  final  consumption,  when 
the  jobber's  services  are  used,  is  an  important  reason 
for  direct  selling  by  manufacturers.     Allied  to  it  are 
the  desire  of  the  manufacturer  to  use  special  selling 
measures  to  bolster  up  his  sales  in  communities  where 
he  has  proved  that  he  is  weak,  and  the  frequent  ina- 
bility to  induce  the  local  jobbers  to  cooperate  in  any 
special  ways  in  those  communities. 

26.  Some  jobbers  antagonistic  to  advertising. — 
Some  few  jobbers  resent  national  advertising  by  man- 
ufacturers. They  say  the  profits  on  advertised  goods 
are  too  small;  they  complain  that  the  manufacturer 
is  making  of  the  jobber  a  mere  machine;  they  resent 
their  lessening  influence  with  retailers  occasioned  by 
the  growing  consumer  demand  for  advertised  goods. 
This  attitude  is  not  logical  unless  the  profit  on  an 
advertised  line  is  really  too  low.  Few  jobbers  hold 
to  this  point  of  view,  but  when  they  are  found,  they 


I 


life 


MARKETING  AND  MERCHANDISING 


THE  JOBBER  AND  HIS  STATUS 


97 


encourage  the  advertising  manufacturer  to  seek  his 
own  markets  rather  than  to  spend  the  time  and  money 
necessary  to  enlist  the  jobber's  support. 

27.  Effect  of  price  cutting. — ^^Vhen  the  manufac- 
turer's control  of  the  resale  prices  of  his  goods  in  the 
hands  of  distributors  was  not  yet  frowned  upon  by 
the  cx)urts,  price  cutting  by  jobbers  and  the  desire  of 
manufacturers  to  be  sure  that  all  retailers  under  sim- 
ilar conditions  paid  the  same  prices  for  their  goods, 
was  a  common  reason  for  the  manufacturer's  aban- 
doning his  jobber  relations  and  going  direct  to  the 
retail  trade.  Price  cutting  by  jobbers  was  possibly 
an  important  stimulus  to  the  development  of  manu- 
facturer-direct-to-retailer  selling  systems. 

28.  Exclusive  agencies  and  direct  selling. — Certain 
kinds  of  goods  are  best  handled  when  they  are  sold 
by  only  one  or  only  a  few  carefully  chosen  dealers  in 
a.town.  The  large  sales  of  these  dealers  make  direct 
selling  by  the  manufacturer  possible.  If  sales  are 
made  thru  the  jobber,  the  manufacturer  may  expe- 
rience great  difficulty  in  inducing  the  jobber  to  make 
proper  selection  of  retail  outlets,  and,  even  if  the 
selection  is  properly  made,  he  can  not  readily  main- 
tain those  close  relations  with  the  exclusive  agencies 
that  are  usually  desirable  if  maximum  sales  are  to  be 
made  in  the  community. 

29.  Complete  lines  and  nature  of  products. — ^When 
a  manufacturer  so  extends  the  number  of  items  in  his 
line  that  he  can  make  relatively  large  unit  sales  to  the 


retailer,  he  ceases  to  find  the  jobber  absolutely  neces- 
sary in  his  operations.  The  large  manufacturers  of 
biscuits  and  crackers  now  make  so  many  different 
items  that  they  can  afford  to  go  direct  to  the  retailer 
with  their  goods.  An  added  reason  for  direct  selling 
in  their  case  is  the  fact  that  the  product  deteriorates 
with  age.  Goods  that  are  liable  to  rapid  deteriora- 
tion must  be  marketed  by  a  system  that  will  insure 
their  reaching  the  retailer  by  the  quickest  and  most 
direct  route.  Meat  packers  sell  direct  to  retailers, 
largely  for  this  reason.  On  the  other  hand,  the  fact 
that  jobbers  can  give  satisfactory  service  even  in  the 
case  of  spoilable  goods,  when  the  demand  is  so  great 
as  to  permit  rapid  turnover  of  wholesale  stocks,  is 
proved  by  the  jobbers'  continued  effectiveness  as  dis- 
tributors of  breakfast  foods  and  other  similar  prod- 
ucts. 

30.  Lowered  cost  of  direct  sales.— F'lnsWy  the 
growing  practice  of  going  over  the  jobber's  head  to 
the  retailer  may  be  attributed  partly  to  the  increasing 
density  of  population.  When  retailers  are  widely 
scattered  and  the  expenses  of  traveling  salesmen  are 
consequently  high,  manufacturers  are  usually  unwill- 
ing to  undertake  the  cost  of  selling  direct.  It  was 
under  these  conditions  that  the  jobber  came  to  be 
recognized  almost  universally  as  the  most  economical 
distributing  medium.  But  when  many  possible  re- 
tail customers  are  grouped  close  together,  the  com- 
paratively small  expense  of  a  local  warehouse  and  of 


I 


98 


MARKETING  AND  MERCHANDISING 


sending  the  manufacturer's  salesmen  direct  to  re- 
tailers tempts  many  manufacturers  to  undertake  this 
method  of  selling. 

31.  Direct  selling  is  natural  tendency. — Altho  the 
changing  status  of  the  jobber  is  due  partly  to  the  de- 
sire of  manufacturers  and  retailers  to  keep  or  to 
obtain  for  themselves  the  jobber's  profit,  it  is  more 
largely  due  to  the  many  things  that  have  happened  of 
late  years  to  alter  marketing  methods — things  that 
have  catered  to  a  natural  desire  on  the  part  of  all  fac- 
tors in  trade  to  shorten  the  chain  of  distribution.  We 
must  always  remember,  however,  that,  altho  direct 
selling  is  a  natural  tendency  and  must  be  expected  to 
increase,  the  jobber's  essential  place  in  industry  is 
founded  deep  in  the  social  and  economic  organization, 
and  he  will  continue  to  serve  the  manufacturer,  the 
retailer,  and  the  consumer  alike  for  many,  many  years 
to  come. 

EEVJEW 

In  what  lines  of  goods  is  the  jobber's  service  of  use  to  the 
retailer  ? 

What  services  does  the  jobber  perform  for  (a)  the  manu- 
facturer^  (b)   the  retailer^   (c)   the  consumer? 

Will  the  jobber  be  eliminated? 

For  what  reasons  are  retailers  to  an  increasing  extent  buying 
direct  from  manufacturers? 

Why  is  the  manufacturer  willing  to  "sell  direct**? 


CHAPTER  VII 

SPECIAL  DISTRIBUTING  FACTORS 

1.  Kinds  of  special  factors.— In  considering  mar- 
keting channels  we  have  discussed  jobbers  and  the 
various  types  of  retailers  as  if  they  were  the  only 
factors  in  the  distribution  of  manufactured  goods. 
They  are  the  most  important  ones  in  point  of  num- 
bers, but  in  certain  industries  other  factors  are  largely 
used  and  have  a  vital  bearing  on  marketing  procedure. 
These  other  aids  in  marketing  we  call  special  distrib- 
uting factors  because  they  are  not  frequently  found 
in  most  industries,  or  because,  when  they  are  found, 
they  often  perform  a  special  type  of  service  distinct 
from  that  of  either  the  old-line  jobber  or  retailer. 
Special  distributing  factors  go  by  a  great  variety  of 
names,  and  the  names  themselves  have  varying  sig- 
nificance in  different  industries  and  sometimes  within 
the  same  industry.     Among  the  better  known  names 
for  these  middlemen  are  the  following:  agents,  mill 
agents,  commission  merchants,  selling  houses,  brokers, 
converters,  factors,  and  auctioneers. 

2.  Special  wholesale  middlemen.— It  is  a  universal 
characteristic  of  most  of  these  distributors  that  they 
are  wholesale  middlemen— very  few  of  them  come 
into  direct  contact  with  the  consumer.     In  the  ma- 

99 


100       MARKETING  AND  MERCHANDISING 

jority  of  cases  they  do  not  take  the  place  of  either 
jobber  or  retailer;  they  form  additional  links  in  the 
chain  of  distribution.  Usually  they  stand  between 
the  manufacturer  and  the  more  customary  types  of 
wholesale  and  retail  distributors.  They  are  most  fre- 
quent in  the  oldest  kinds  of  manufacturing  industries, 
where  traditions  have  governed  procedure  for  many 
years,  where  strong  organizations  of  middlemen  have 
gained  great  influence  in  the  market,  and  where  the 
opportunity  for  the  manufacturer  to  find  new  and 
short  sales  channels  for  his  own  product  is  not  so 
great  as  in  newer  industries  where  the  bonds  of  cus- 
tom are  little  regarded. 

3.  The  influence  of  custom. — Probably  the  chief 
argument  for  the  activities  of  most  of  the  special 
classes  of  middlemen  is  trade  custom.  Selling  houses, 
mill  agents,  or  commission  merchants  have,  for  ex- 
ample, exercised  great  influence  in  the  marketing  of 
cotton  textiles  since  the  birth  of  the  industry.  In  an 
early  day  they  were  universally  needed.  The  country 
was  sparsely  settled;  cotton  mills  were  for  the  most 
part  grouped  in  a  small  portion  of  New  England ;  in- 
dividual mills  were  small  and  not  always  strong  finan- 
cially ;  there  was  a  sharp  line  drawn  between  manufac- 
turing and  selling — the  manufacturer  seldom  was  in- 
timately acquainted  with  selling  processes,  and  pre- 
ferred to  put  all  his  capital,  thought,  and  energy  into 
production.  Under  such  conditions  there  naturally 
came  into  existence  a  group  of  middlemen,  who,  by 
taking  upon  themselves  the  responsibility  of  market- 


SPECIAL  DISTRIBUTING  FACTORS 


101 


ing  the  entire  output  of  a  mill,  relieved  the  mill  owner 
of  the  necessity  of  finding  and  cultivating  his  own 
market.  There  is  still  a  real  need  for  these  middle- 
men in  many  instances,  but  in  many  others  they  per- 
sist, tho  no  longer  absolutely  necessary,  because  tra- 
ditions in  trade  are  as  strong  as  traditions  usually  are 
in  any  other  field  of  human  endeavor. 

4.  Limited  capital  as  a  justification  for  special 
middlemen. — Another  important  justification  for 
special  distributing  factors  is  found  when  the  capital 
of  the  manufacturer  is  limited.  A  jobber  is  fre- 
quently the  retailer's  banker,  but  he  less  seldom  fi- 
nances the  manufacturer.  If  a  manufacturer  needs 
additional  money  to  operate  his  plant,  and  has  no 
facilities  for  financing  in  the  customary  ways,  he  may 
find  some  mill  agent,  commission  man,  or  other  factor, 
who,  in  exchange  for  the  manufacturer's  agreement 
to  let  him  market  his  entire  output,  will  advance  funds 
for  the. purchase  of  raw  materials  and  for  other  manu- 
facturing needs. 

5.  Effect  of  small  output. — Small  output  may  be 
the  deciding  factor  in  the  use  of  special  distributing 
factors,  particularly  when  coupled  with  a  scattered 
and  relatively  thin  market.  A  manufacturer  of  a 
food  specialty  may  not  feel  able  to  finance  direct  sales 
even  to  wholesale  grocers — the  sales  to  each  one  might 
not  justify  the  direct  selling  expense.  A  merchan- 
dise broker,  handling  several  non-competing  lines, 
may  be  found  who  will  take  on  his  product  and  mer- 
chandise the  entire  group  of  products  to  wholesale 


102       MARKETING  AND  MERCHANDISING 

grocers  at  a  lower  cost  to  each  manufacturer  than  if 
each  were  to  try  to  sell  his  own  goods. 

6.  Distance  from  the  market. — Unf amiliarity  with 
the  market  and  distance  from  it  are  often  the  causes 
of  the  use  of  special  marketing  factors.  Such  causes 
explained  in  large  measure  the  use  of  these  factors  in 
textile  trade  particularly  in  New  England.  With 
the  development  of  the  country,  New  England  manu- 
facturers are  now  less  dependent  on  outside  aid  in 
finding  and  cultivating  markets,  while  the  rise  of  rel- 
atively isolated  Southern  cotton  mills  has  opened 
a  new  field  for  the  operations  of  the  expert  sales  or- 
ganizations that  have  always  aided  the  textile  manu- 
facturer. 

7.  Definitions  vs.  common  usage. — In  considering 
the  definitions  of  the  different  kinds  of  special  market- 
ing factors,  it  must  be  remembered  that  there  is  much 
popular  confusion  in  the  use  of  the  various  terms. 
Dictionary  and  legal  definitions  are  one  thing,  and 
popular  usage  is  another.  It  is  well  to  know  the  pre- 
cise meaning  of  the  terms,  but  it  is  necessary  also  in 
every  instance,  before  using  one  of  these  distributing 
factors,  to  look  behind  the  phase  that  he  uses  to  de- 
scribe his  activities,  and  to  find  out  in  the  individual 
instance  just  what  those  activities  are. 

8.  The  agent. — Strictly  speaking,  an  agent  is  the 
direct  representative  of  a  manufacturer,  jobber,  or  re- 
tailer, compensated  on  some  other  than  a  straight 
salary  basis,  acting  as  an  independent  business  man 
not  responsible  to  his  principal  for  the  details  of  his 


SPECIAL  DISTRIBUTING  FACTORS 


103 


activities.  The  principal  may  dictate  general  pol- 
icies, profits,  prices,  and  terms  of  resale,  but  the  agent 
still  retains  large  control  over  his  methods  of  doing 
business.  A  true  agent  usually  sells  by  sample. 
The  law  of  agency  says  that  the  principal  is  bound  by 
the  agent's  acts  when  he  operates  within  the  specified 
scope  of  his  agency,  or  when  he  does  what  is  usual  and 
customary  in  the  trade,  and  thus  to  the  customer's  eyes 
acts  within  his  apparent  authority,  even  tho  he  may 
not  have  specific  authority  to  do  the  thing  in  question. 
If  he  should  carry  consigned  stock  for  the  principal, 
the  principal  would  bear  the  risk  of  loss. 

9.  Where  the  agent  is  found. — Frequently  a  sales 
agent  takes  the  responsibility  for  the  entire  output  of 
a  factory.  This  is  common  in  the  hardware  field 
where  many  relatively  small  manufacturers  produce 
items  of  small  unit  value-  In  the  textile  field,  sales 
agents,  or  mill  agents  as  they  are  commonly  known, 
by  assuming  responsibility  for  marketing  all  of  a  fac- 
tory's products  serve  the  manufacturer  in  important 
ways.  By  agreeing  in  advance  of  production  for  a 
season  to  take  the  entire  output  at  an  agreed  upon 
price,  the  mill  agent  frees  the  manufacturer  from  the 
risk  of  loss  involved  in  fluctuating  market  prices.  The 
manufacturer,  of  course,  also  foregoes  the  responsi- 
bility of  profit  from  fluctuating  market  values,  but 
the  benefit  of  insurance  against  loss  is  great  enough  to 
justify  the  arrangement.  In  addition  to  textiles, 
other  lines  such  as  hosiery,  underwear,  and  gloves  are 
often  marketed  thru  mill  agents. 


* 


i 


104       MARKETING  AND  MERCHANDISING 

10.  Two  kinds  of  agents. — The  word  agent  is  com- 
monly applied  to  two  very  different  kinds  of  middle- 
men. There  is,  first,  the  agent  in  the  strictly  legal 
meaning  of  the  word,  who  is  only  a  sales  representa- 

,tive,  selling  by  sample,  taking  orders  subject  to 
acceptance  by  his  principal,  and  having  no  responsi- 
bility for  coUections  or  deliveries.  As  a  variation  of 
his  normal  activity,  he  may  guarantee  payment  by 
the  accounts  that  he  opens.  On  the  other  hand,  there 
is  the  agent  who  maintains  warehouses,  delivers  and 
bills  his  own  sales,  and  makes  his  own  collections. 
In  other  words  he  assumes  all  the  functions  of  a 
trader.  Sometimes  he  actually  owns  his  stock  out- 
right. In  such  cases  he  is  actually  an  independent 
wholesaler  or  retailer.  He  is  called  an  agent  only  be- 
cause of  tradition  or  loose  custom  in  the  trade. 

11.  Wrong  use  of  word  agent. — There  is  still  an- 
other use  of  the  word  agent.  Sometimes  a  sales 
manager  is  called  a  sales  agent.  This  is  merely  a 
survival  of  the  time  when  nearly  all  manufactured 
goods  were  actually  sold  thru  independent  agents 
who  relieved  the  manufacturers  of  the  responsibility 
of  cultivating  their  own  markets.  Traveling  sales- 
men are  at  times  erroneously  known  as  agents.  In 
the  interests  of  clear  thinking  and  accurate  speaking, 
these  and  other  loose  uses  of  the  term  are  to  be 
avoided. 

12.  The  commission  merchant. — In  the  legal  sense, 
a  commission  merchant  or  factor  is  one  who  receives 
goods  on  consignment,  sells  them  for  what  thev  will 


SPECIAL  DISTRIBUTING  FACTORS  105 

bring,  and  returns  part  of  the  selling  price  to  the 
principal,  retaining  an  agreed  upon  percentage  as  his 
commission  or  brokerage.  When  on  consignment 
with  him  the  goods  are  held  at  his  own  risk,  and  he 
sells  them  in  his  own  name.  In  these  respects  he  dif- 
fers from  the  agent  who,  strictly  speaking,  holds 
goods,  if  at  all,  at  the  risk  of  the  principal,  and  who 
sells  for  the  principal  and  usually  in  the  principal's 
name.  Furthermore  the  commission  merchant  has 
large  discretion  in  the  fixing  of  prices  and  terms,  and 
he  is  normally  responsible  for  deliveries  and  for  the 
collection  of  accounts. 

13.  The  hanking  function. — Commission  merchants 
often  finance  the  manufacturer's  operations  by  ad- 
vancing money  to  the  producer  prior  to  the  sale  of  the 
produce.  In  this  way  they  acquire  an  important  in- 
terest in  the  manufacturer's  business  and  are  able  to 
dictate  styles,  packings,  and  other  matters  of  manu- 
facturing policy.  The  justification  of  this  control 
is  the  justification  of  a  banker  who  has  a  financial 
interest  in  a  manufacturer's  operations.  It  is  justi- 
fied also  by  the  fact  that  the  commission  merchant, 
being  close  to  the  market,  can  translate  buyers'  re- 
quirements into  terms  of  manufacturing  procedure. 

14.  Commission  merchants  who  are  not  commission 
merchants. — Trade  usage  takes  httle  account  of  legal 
meanings  of  titles.  It  continues  to  call  a  man  a  com- 
mission merchant,  even  tho  he  may  never  see  the  goods 
he  sells,  sometimes  even  when  he  does  not  sell  the 
goods,  but  merely  collects  the  payment  for  them  on 


\  .1 


106       MARKETING  AND  MERCHANDISING 

behalf  of  his  principal,  or  when  he  acts  strictly  as  a  fac- 
tor by  merely  advancing  money  to  the  manufacturer 
and  then  reimbursing  himself  by  collecting  from  the 
manufacturer's  customers.  Commission  merchants 
sometimes  retain  the  title  even  when  they  have  become 
independent  traders,  buying  and  selling  on  their  own 
account,  and  have  ceased  largely  or  entirely  to  do 
business  on  a  commission  basis.  This  inaccurate 
trade  usage  of  terms  means  only  that  marketing 
procedure  is  changing  very  fast,  and  that  the  custom- 
ary use  of  names  and  terms  has  not  kept  pace  with 
the  actual  business  changes  that  are  going  on  all  the 
time.  Perhaps  we  need  no  other  evidence  that  estab- 
lished marketing  channels  are  not  necessarily  per- 
manent channels,  and  that  he  who  would  seek  the 
shortest  and  most  economical  way  to  a  market  must 
scan  closely  even  traditional  practices  that  seem  to  be 
strongly  grounded  in  his  industry. 

15.  The  broker. — ^A  merchandise  broker  is  one  who 
usually  sells  without  having  goods  actually  in  his  pos- 
session. Normally  he  acts  in  the  name  of  his  principal, 
giving  a  memorandum  of  the  transaction  to  buyer 
and  seller,  and,  after  the  order  is  filled,  drawing  his 
commission  from  the  seller.  Like  a  commission  mer- 
chant, he  is  largely  an  independent  operator,  seeking 
trade  where  he  can  find  it  and  functioning  chiefly  as 
a  go-between  to  bring  buyer  and  seller  together. 

16.  The  ""regular""  broker. — Merchandise  brokers 
may  be  roughly  grouped  into  two  classes.  First 
there  is  the  broker  who  is  the  regular  appointed  sales 


SPECIAL  DISTRIBUTING  FACTORS 


107 


representative  o^  one  or  more  manufacturers,  ap- 
pointed to  a  specific  sales  territory  and  doing  busi- 
ness in  all  respects  as  a  direct  sales  representative  of 
the  manufacturer,  except  that  he  finances  his  own 
operations.  This  type  is  common,  for  instance,  in 
grocery  lines.  A  so-called  broker  may  obtain  for  a 
given  territory  exclusive  representation  for  several 
lines  of  goods — say  a  brand  of  baking  soda,  a  brand 
of  condensed  milk,  a  line  of  laundry  soaps,  and  other 
non-competing  items.  If  he  carries  no  stock  he  may 
be  literally  a  broker.  If  he  carries  a  consigned  stock 
he  is  literally  a  commission  merchant,  altho  he  may 
call  himself  a  broker.  And  if  he  buys  any  part  of  his^ 
stock  outright  and  then  sells  it  again,  he  may  still  call 
himself  a  broker,  altho  he  has  few  of  the  functions 
of  one.  A  merchandise  broker  may  sell  either  to 
jobbers  or  to  retailers.  There  are  many  of  these 
middlemen  selling  to  the  jobbing  trade,  who,  while 
known  as  brokers,  and  sometimes  as  manufacturers' 
agents,  are  really  outright  traders  in  their  own  behalf. 
Trade  usage  of  the  word  broker  is  as  loose  as  in  the 
case  of  agents  and  commission  men. 

17.  The  '"casuaV"  broker. — A  second  type  of 
broker  may  be  called  the  casual  broker.  Instead  of 
regularly  representing  any  manufacturer,  he  makes  it 
his  business  to  seek  out  a  buyer,  ascertain  his  require- 
ments, and  then  find  a  seller  who  is  willing  to  fill  the 
order.  Normally  he  gets  his  pay  in  the  form  of  a 
commission  from  the  seller.  All  businesses  abound 
with  brokers  of  this  tj^pe.     They  are  found  in  the  coal 


t 


i\ 


M 


i 


108       MARKETING  AND  MERCHANDISING 

* 

biisiness,  in  the  dry-goods  business,  in  the  printing 
and  lithographing  business,  and  in  nearly  every  other 
field.  Occasionally  they  perform  no  service  which 
manufacturers  or  buyers  could  not  equally  well  per- 
form for  themselves,  and  find  their  opportunity  only 
because  sellers  or  buyers  are  not  alive  to  the  possi- 
bility of  helping  themselves.  More  often  they  per- 
form a  real  service,  well  worth  its  cost.  There  may  be 
a  real  shortage  of  merchandise,  and  a  specialist  may 
be  needed  to  search  out  sources  of  supply.  There 
may  be  many  small  producers  in  the  field,  whose  vary- 
ing ability  to  serve  a  particular  buyer  can  be  econom- 
ically learned  only  by  the  skilful  investigations  of  a 
specialist  in  the  industry.  Or  the  broker,  in  the  print- 
ing and  engraving  business,  for  instance,  may  justify 
his  activities  by  submitting  designs  for  advertising 
material,  which,  when  accepted  by  a  buyer,  he  places 
with  some  printer  and  then  collects  from  the  printer 
a  commission  in  payment  for  his  services. 

18.  How  cotton  goods  are  sold. — The  textile  trade 
is  the  stronghold  of  special  factors  in  marketing,  and 
their  functions  can  be  best  studied  in  connection  with 
textile  selling  operations.  They  are  found  in  the  cot- 
ton, woolen,  and  silk  industries.  Because  cotton  mar- 
keting presents  some  features  not  associated  with 
woolen  or  silk,  we  shall  confine  our  description  of  tex- 
tile operations  to  a  brief  survey  of  the  sales  channels 
for  cotton  piece  goods.  These  sales  channels  are  not 
always  the  same.     Altho  the  longest  possible  system 


SPECIAL  DISTRIBUTING  FACTORS 


109 


of  distribution  is  described,  it  should  be  understood 
that  corners  are  often  cut  and  that  not  all  of  the 
available  middlemen  are  always  used. 

19.  The  mill  agent. — Cotton  piece  goods  are  usu- 
ally sold  by  the  New  England  and  Southern  mills  "in 
the  gray" — that  is,  the  natural  color  of  the  spun  cot- 
ton, unbleached,  undyed,  and  unprinted.  These  gray 
goods  may  first  go  from  the  mill  to  the  selling  house 
or  mill  agent,  who,  as  we  have  seen,  probably  handles 
the  entire  output  of  one  or  more  mills.  Ordinarily 
he  does  not  actually  have  possession  of  the  goods,  but 
concerns  himself  with  their  sale  for  the  account  of  the 
mill.  In  addition  to  selling  the  goods,  he  may  render 
the  mill  financial  assistance,  by  indorsing  the  mill's 
notes  or  by  guaranteeing  its  accounts,  and  sometimes 
by  advancing  money  against  sales  that  have  been  made 
by  the  agent. 

20.  How  the  broker  functions. — The  second  step 
in  the  marketing  process  may  be  from  mill  agent  to 
broker.  The  broker  is  a  mere  go-between,  who  actu- 
ally buys  no  cloth  and  accepts  no  responsibility  for 
its  sale.  He  finds  a  purchaser  who  has  need  of  cloth 
of  a  particular  sort,  and  puts  him  in  touch  with  an 
agent  or  manufacturer  who  has  that  particular  cloth 
for  sale.  Thru  his  activities,  the  purchaser  is  often 
able  to  find  more  readily  the  goods  he  wants,  and  the 
manufacturer  or  mill  agent  economizes  in  time  spent 
in  seeking  customers.  Brokers  are  particularly 
prominent  in  the  activities  of  the  Fall  River  cotton 


i 


( 

\ 


110        MARKETING  AND  MERCHANDISING 

mills.  In  the  North,  they  usually  act  directly  for 
the  mills,  while  in  the  South  they  more  frequently  act 
for  mill  agents. 

21.  The  converter. — The  broker's  purchaser  may 
be  a  merchant  converter.  The  term  converter  is  used 
in  several  senses,  but  usually  it  is  applied  to  a  class  of 
merchants  who  buy  cloth  in  the  gray,  have  it  converted 

(bleached,  dyed,  or  printed)  and  then  sell  it  to  the 
next  factor  in  the  marketing  process.  The  converter 
either  gets  an  order  for  cloth  having  a  particular  color 
or  pattern  before  he  buys  gray  goods  for  conversion, 
or  he  devises  the  patterns  himself  and  buys  the  cloth 
and  has  it  converted  at  his  own  risk.  For  the  actual 
bleaching,  dyeing,  or  printing,  the  converter  sends  the 
cloth  to  a  converting  establishment  that  offers  him  the 
best  terms  or  that  makes  a  specialty  of  the  kind  of 
finish  he  desires.  The  bleaching,  dyeing,  or  printing 
establishment  does  the  mere  mechanical  work  for  the 
merchant  converter,  returning  the  finished  cloth  to 
him  to  be  sold.  Converters  of  the  merchant  type  are 
becoming  increasingly  important  in  the  cotton  indus- 
try. They  relieve  the  mill  and  the  finisher  of  a  cer- 
tain  amount  of  risk;  they  bring  added  capital  into  the 
business,  and,  by  carrying  their  customers'  credit,  en- 
able the  mills  and  the  finishers  to  turn  their  capital  and 
get  their  profit  more  quickly. 

22.  Remaining  factors  in  the  chain. — The  merchant 
converter  may  sell  the  finished  piece  goods  either  to 
manufacturers  of  shirts,  dresses,  and  other  manufac- 
tured cotton  goods,  or  to  wholesale  dry-goods  houses 


SPECIAL  DISTRIBUTING  FACTORS  111 

which  handle  the  material  in  the  piece.  If  the  sale  is 
made  to  manufacturers  of  cotton  garments  and  other 
kinds  of  cotton  products,  these  manufacturers  in  turn 
may  sell  to  wholesale  dry-goods  houses  or  other  types 
of  wholesale  establishments.  The  wholesale  house  or 
jobber  in  dry-goods  is  an  important  link  in  the  dis- 
tributing chain.  In  an  earlier  day  great  wholesale 
dry-goods  establishments  in  New  York  and  other  east- 
ern cities  largely  dominated  the  American  market. 
Today  the  center  of  this  industry  has  moved  west- 
ward, and,  in  common  with  the  movement  in  most 
jobbing  lines,  the  smaller  local  jobbers  have  largely 
displaced  in  influence  the  jobber  operating  on  broad 
sectional  or  national  lines. 

The  jobber  sells  to  the  retailer  of  dry-goods  or  of 
the  products  made  out  of  the  finished  cotton  piece 
goods,  and  the  retailer  completes  the  chain  by  selling 
to  consumers. 

23.  Variation  in  marketing  procedure. — As  we 
have  suggested,  this  long  chain  of  distribution  is  com- 
mon altho  by  no  means  universal  in  the  cotton  indus- 
try. A  mill  may  sell  direct  to  a  broker,  a  merchant 
converter,  an  actual  finisher,  a  wholesaler,  a  manu- 
facturer of  cotton  garments,  or  even  to  a  large  re- 
tailer. The  great  department  stores  not  infrequently 
have  direct  contact  with  one  or  more  mills  and  buy 
gray  goods  for  converting  in  their  own  finishing  es- 
tablishments. A  finishing  establishment  may  act  as 
merchant  on  its  own  account,  buying  direct  from  mill, 
mill  agent,  or  broker,  and  selling  to  any  one  who  will 


>t 


112       MARKETING  AND  MERCHANDISING 

buy.  A  manufacturer  of  shirts  may  buy  direct  from 
a  mill  or  may  even  own  mills  of  his  own,  and  he  may 
control  his  own  finishing  plants.  Wholesalers  may 
do  their  own  converting.  The  possible  alteration  or 
combination  of  sales  channels  is  almost  endless.  It  is 
nevertheless  true  that  the  great  majority  of  all  gray 
goods  are  sold  by  the  mill  either  to  a  selling  house, 
thru  a  broker,  or  to  a  merchant  converter.  The  spe- 
cial distributing  factor  is  strongly  entrenched  in  the 
industry,  and  it  can  not  be  denied  that  he  usually 
serves  a  good  purpose  and  performs  economical  and 
necessary  functions. 

24.  The  auction. — The  only  remaining  special  mar- 
keting factor  to  be  considered  is  the  auctioneer. 
Formerly  mill  agents  for  cotton  and  woolen  goods 
often  sold  their  goods  at  auctions,  which  were  at- 
tended by  jobbers  from  all  over  the  country.  Very 
little  of  this  still  exists,  tho  carpets  and  rugs  are 
still  sold  in  this  way  to  some  extent.  The  auction 
continues  to  hold  a  prominent  place  in  the  marketing 
of  fruit,  tobacco,  and  some  other  agricultural  prod- 
ucts, but  it  seems  to  have  largely  served  its  day  in 
helping  to  move  manufactured  goods. 

The  auction  was  particularly  valuable  in  setting  a 
price  based  definitely  on  the  relation  of  supply  and 
demand  at  a  time  when  there  were  no  quick  and  cheap 
methods  of  communication  and  transportation.  To- 
day with  every  newspaper  in  the  country  publishing 
daily  prices  on  staple  goods  in  the  country's  more  im- 


SPECIAL  DISTRIBUTING  FACTORS  113 

portant  markets,  the  auction  is  no  longer  needed  to 
serve  this  purpose. 

The  development  of  branded  lines  of  known  value 
has  removed  the  products  of  many  mills  from  the 
staple  class.  When  cloth  was  just  cloth,  the  products 
of  many  mills  could  be  lumped  together  and  sold  read- 
ily by  auction.  With  the  growing  demand  for  special 
goods  for  special  purposes,  the  relation  of  buver  and 
seller  has  become  more  intimate  and  there  has  irisen  a 
need  for  a  type  of  middleman  more  discriminating 
than  the  auctioneer  can  ever  be  in  his  efforts  to  bring  a 
buyer  for  a  special  product  into  contact  with  the  one 
manufacturer  who  can  most  quickly  and  most  eco- 
nomically give  him  exactly  the  product  that  he  needs. 

REVIEW 

Name  some  kinds  of  special  distributing  factors,  describe  the 
work  they  do  and  indicate  the  lines  of  industry  in  which  they 
serve 

What  justifies  the  existence  of  the  special  middlemen? 
Wiiat  IS  the  function  of  the  agent  and  in  what  lines  is  he 
usually  found? 

Describe  the  use  of  the  word  agent  to  designate  two  kinds 
of  middlemen. 

Describe  the  functions  of  a  commission  merchant 
What  is  a  merchandise  broker?     Into  what  two  classes  are 
tney  divided? 

Discuss  the  work  of  (a)  the  mill  agent,  (b)  the  broker, 
(e;  the  converter. 


COOPERATIVE  BUYING  GROUPS 


11& 


CHAPTER  VIII 

COOPERATIVE  BUYING  GROUPS 

1.  Purpose  of  cooperation.— A  form  of  competi- 
tion that  is  old  in  years  but  young  in  importance  in 
this  country  is  that  which  arises  when  groups  of  con- 
sumers or  of  retailers  band  together  to  do  for  them- 
selves what  independent  middlemen  would  otherwise 
have  to  do  for  them.  This  movement  is  typified  by 
the  cooperative  store  operated  without  profit,  owned 
by  a  group  of  consumers  and  run  exclusively  in  their 
interest.  It  is  also  typified  by  the  cooperative  whole- 
sale buying  and  distributing  estabhshment,  owned 
and  operated  by  a  group  of  retailers  who  seek  to  per- 
form the  jobbing  function  for  themselves  without  as- 
sistance from  independent  wholesalers.  The  co- 
operative movement  has  but  one  purpose — to  reduce 
prices  by  eliminating  all  of  the  profit  and  part  of  the 
expenses  of  the  middleman.  Carried  to  a  logical  con- 
clusion, its  ultimate  effect  would  be  to  eliminate  the 
independent  middleman  entirely.  Altho  the  move- 
ment has  developed  very  slowly  in  this  country,  it  has 
made  tremendous  strides  abroad.  Its  inherent  ele- 
ments of  strength,  emphasized  by  changing  social  and 
industrial  conditions  in  the  United  States,  suggest  the 

possibility  of  development  here  that  is  of  vital  im- 

114 


portance  both  to  distributors  and  to  manufacturers. 

2.  Cooperation  abroad. — The  modern  cooperative 
store  idea  probably  started  in  Rochdale,  England,  in 
1844.  Twenty  weavers  banded  together  to  run  their 
own  grocery  store.  The  beginnings  were  small,  but 
they  were  successful.  From  this  tiny  start  has  grown 
the  modern  cooperative  movement  thruout  the 
world.  In  the  United  Kingdom  one  of  every  four 
families  today  is  said  to  get  most  or  all  of  its  food 
supplies  from  cooperative  stores.  The  retail  co- 
operatives have  banded  together  into  wholesale  so- 
cieties that  exercise  far-reaching  industrial  power. 
Some  of  them  own  tea  and  coffee  plantations,  op- 
erate their  own  factories,  and  control  steamship  lines. 

On  the  Continent  the  cooperative  idea  has  devel- 
oped astonishing  strength.  Its  chief  stronghold  is  in 
Denmark,  where  the  cooperatives  control  half  of  the 
total  business  in  foodstuffs.  In  Germany  one  out  of 
every  five  families  is  associated  in  some  cooperative 
buying  plan.  In  France  the  ratio  is  one  in  ten.  In 
Russia,  before  the  experiment  in  universal  commun- 
ism, the  cooperatives  were  very  strong.  All  over 
Europe  the  idea  is  taking  firm  hold  of  the  people. 
It  is  a  movement  that  can  not  be  ignored. 

3.  Eoctent  of  cooperation  in  United  States. — In 
the  United  States  the  early  cooperative  experiments 
were  inspired  by  the  Rochdale  success.  In  1844,  the 
same  year  in  which  the  Rochdale  pioneers  led  the 
way,  a  tailor  in  Boston  started  a  buying  club  for  the 
New  England  Association  of  Mechanics  and  Work- 


m 


116       MARKETING  AND  MERCHANDISING 

men.  This  developed  into  the  New  England  Protec- 
tive Union  and  the  American  Protective  Union.  It 
operated  more  than  350  stores  and  its  annual  sales  ran 
as  high  as  $2,000,000.  It  lasted  only  a  few  years. 
All  of  the  stores  failed  or^reverted  to  private  owner- 
ship. During  the  latter  part  of  the  nineteenth  cen- 
tury various  other  industrial  groups  were  active  in  es- 
tablishing cooperative  stores.  Prominent  among 
them  were  the  Grange  (Patrons  of  Husbandry)  and 
the  Farmers'  Alliance.  Altho  some  of  the  stores 
started  in  the  last  century  by  farmers'  and  mechanics' 
organizations  have  survived,  most  of  them  succumbed 
to  the  adverse  influences  that  have  retarded  coopera- 
tion in  America.  By  1903  it  was  estimated  that  there 
were  only  200  cooperative  stores  in  the  United  States. 

Of  late  years  the  movement  has  gained  new  head- 
way. In  1922  in  the  United  States  there  were  ap- 
proximately 3,000  consumers'  cooperative  retail  stores, 
dealing  chiefly  in  food  products,  supported  by  some 
half-million  consumers,  and  doing  a  business  of 
$200,000,000  a  year.  Despite  this  recent  develop- 
ment, the  movement  has  not  yet  touched  the  lives  or 
interests  of  the  overwhelming  majority  of  the  Ameri- 
can people.  It  is  pertinent  to  inquire  into  the  reasons 
for  the  great  success  of  cooperation  abroad  and  its 
relative  insignificance  here. 

4.  Cooperation  a  class  movement. — In  Europe  co- 
operation is  a  class  movement,  generally  an  expression 
of  the  workingman's  or  the  farmer's  class  conscious- 
ness.    In  the  United  States  the  wage-earner  of  to- 


COOPERATIVE  BUYING  GROUPS 


117 


day  is  the  capitalist  of  tomorrow.  No  one  is  debarred 
from  rising  to  any  heights  to  which  his  mentality  and 
abihty  can  carry  him.  There  are  no  fixed  classes 
except  in  the  imagination  of  foreign-born  agitators 
who  seek  to  impose  upon  this  country  the  hopelessness 
of  a  class  struggle  that  is  alien  to  all  our  ideals  and 
traditions.  Cooperation  in  buying  to  give  greater 
strength  to  one  class  in  its  warfare  with  another  has 
made  little  progress  here. 

5.  Influence  of  low  wages. — ^Wages  always  have 
been  relatively  higher  in  the  United  States  than  in 
most  other  countries.  Standards  of  living  have  al- 
ways been  comparatively  high.  In  the  past,  wages 
abroad  have  often  been  so  low  that  workingmen  would 
have  been  shut  off  from  many  of  the  relatively  neces- 
sary things  of  life  if  they  had  not  been  able  to  buy 
them  for  less  money  than  was  charged  by  independent 
dealers.  In  America  the  pinch  of  poverty  has  not 
necessitated  cooperation  as  it  has  in  many  countries 
across  the  water. 

6.  Need  of  loyalty. — The  success  of  a  cooperative 
movement  depends  primarily  on  the  loyalty  of  its 
supporters.  Unless  a  cooperative  store  can  be  as- 
sured of  the  constant  trade  of  a  definite  group  of 
people,  its  success  is  doubtful.  In  Europe  the  in- 
centive to  loyalty  is  provided  by  an  almost  universal 
class  consciousness.  There  is  no  such  incentive  here. 
We  are  individualistic  in  politics  and  in  industry. 
The  influx  of  immigrants  may  change  this  condition,, 
but  the  tradition  of  the  pioneer  whose  isolated  family 


I'  Ai 
11 


V 


118       MARKETING  AND  MERCHANDISING 

led  a  self-sufficient  economic  life  is  still  strong  in  all 
phases  of  our  national  existence. 

7.  Effect  of  agricultural  conditions. — In  Europe 
farms  are  small,  and  the  farmers  live  close  together. 
This  encourages  community  action  in  buying  as  well 
as  m  other  ways.  Here  the  size  of  our  farms,  and  be- 
fore the  days  of  automobiles  at  least,  the  relative  iso- 
lation of  farmers  brought  country-dwellers  into  in- 
frequent contact  with  one  another.  This  increased 
the  trend  toward  individualism  rather  than  toward 
•cooperation.  Quickened  means  of  communication 
and  transportation  are  largely  responsible  for  the 
developing  spirit  of  cooperation  among  farmers. 
There  is  great  instability  in  our  farm  life;  farms  are 
not  as  a  rule  handed  down  from  one  generation  to 
another;  they  are  worked  frequently  by  renters  who 
have  no  real  stake  in  the  land  and  have  httle  interest 
in  building  up  cooperative  societies,  the  greatest  ad- 
vantages of  which  must  usually  come  only  after  a  con- 
siderable period  of  planning  and  building. 

8.  Kinds  of  cooperative  buying. — Cooperation  for 
the  purpose  of  reducing  prices  by  eliminating  the 
profits  of  one  or  more  classes  of  middlemen  takes 
many  forms.  These  types  of  cooperative  movements 
may  be  divided  into  two  main  classes,  retail  coopera- 
tion and  wholesale  cooperation.  Retail  cooperation 
means  the  banding  together  of  consumers  to  do  for 
themselves  what  the  independent  retailer  would  other- 
wise have  to  do  for  them.  In  wholesale  cooperation, 
there  is  a  banding  together  of  retailers  to  perform  the 


COOPERATIVE  BUYING  GROUPS 


119 


jobbing  function  for  themselves.  There  may  be  a 
third  type  of  cooperation — combination  among  job- 
bers to  obtain  more  favorable  relations  with  manufac- 
turers.    As  a  form  of  cooperative  buying,  this  third 

type  is  seldom  found. 

9.  Retail    hmjing    exchanges.— The   most    simple 
form  of  retail  cooperation  is  the  consumers'  buying 
syndicate.     A  gropp  of  consumers  pool  their  pur- 
chases  in  order  to   buy  direct   in  quantities   from 
manufacturer  or  jobber  and  to  get  the  lowest  pos- 
sible prices  for  the  quantity  purchased.     If  a  group 
of  this  sort  carries  on  more  or  less  regular  activities,  it 
is  usually  known  as  a  buying  exchange.     There  are 
some  very  successful  buying  exchanges  in  agricultural 
communities.     An  officer  of  the  exchange  may  mail 
regularly  to  the  members  quotations  on  staple  lines. 
Usually  each  member  pays  cash  in  advance ;  the  money 
is  deposited  in  a  designated  bank,  which  will  furnish  a 
certificate  that  the  money  is  there,  awaiting  the  ship- 
per's draft.     The  orders  and  certificates   are   for- 
warded to  the  manufacturer  or  dealer  who  attaches  a 
draft  to  the  bill  of  lading.     Payment  is  ma'de  thru 
the  bank  where  the  funds  are  on  deposit.     The  ex- 
change in  this  way  assumes  no  financial  responsibil- 
ity for  the  order.     The  advantages  to  the  members 
are  low  unit  prices  and  savings  in  freight  thru  con- 
solidated shipments. 

10.  Cooperative  stores. — The  cooperative  retail 
store  is  the  more  common  form  of  retail  cooperation. 
If  it  follows  the  Rochdale  model,  it  sells  go§ds  at  the 


."' 


!      J 


n  \ 


B'' 


1^ 


^Vl' 


i 


120       MARKETING  AND  MERCHANDISING 

regular  market  price,  dealing  with  any  one  who  will 
buy,  but  at  the  end  of  a  given  period  returning  a  re- 
bate or  dividends  to  its  members  based  on  the  amount 
of  their  purchases.  Sometimes  it  pays  to  non-mem- 
bers a  dividend  smaller  than  the  one  paid  to  members. 
Usually  it  sells  only  for  cash.  Occasionally  it  re- 
stricts sales  to  members  only.  Each  member  has  an 
equal  vote  in  the  control  of  the  store,  regardless  of  the 
amount  of  his  stock  holdings.  Some  cooperative 
stores  ignore  regular  market  selling  prices ;  they  sell 
at  cost  plus  a  fixed  percentage  to  cover  expenses  of 
operation.  Most  of  the  existing  cooperative  stores 
in  the  United  States  deal  only  in  foodstuffs.  A  few 
of  them  handle  simple  staples  in  other  lines.  Books 
and  other  supplies  for  students  are  sold  by  coopera- 
tive stores  in  college  communities. 

11.  Possibility  of  low  selling  prices. — There  are 
three  elements  in  a  retail  selling  price — cost  of  the 
goods,  expense  of  doing  business  and  net  profit.  A 
single  cooperative  store  can  buy  goods  no  more 
cheaply  than  a  privately  owned  store.  In  fact,  it  is 
likely  to  have  difficulty  in  getting  wholesale  prices 
from  many  sources  of  supply.  Nor  is  it  likely  to  do 
business  any  more  cheaply  than  a  privately  owned 
store,  even  tho  it  may  omit  credit  accounts,  delivery, 
and  other  forms  of  service.  So  far  in  America  we 
have  not  proved  in  every  case  that  community  activity 
is  as  efficient  as  individual  activity  spurred  on  by  the 
incentive  of  profits.  The  cost  of  doing  business  in 
many  cooperative  stores  is  higher  than  the  expense  in 


COOPERATIVE  BUYING  GROUPS 


121 


: 


ordinary  stores.  The  chief  possible  saving  to  the  co- 
operative, therefore,  is  the  net  profit  of  the  retailer. 
In  many  lines  this  is  very  small — so  small  that  the 
increased  expense  of  doing  business  in  the  cooperative 
stores  often  entirely  swallows  it.  As  the  sole  pur- 
pose of  the  cooperative  is  to  lower  prices,  it  is  natural 
for  retail  cooperators  to  group  their  stores  together 
so  as  to  obtain  better  wholesale  prices  and  to  eliminate 
the  jobbing  profit.  Not  until  this  is  done  is  the  co- 
operative ordinarily  able  to  make  its  net  selling  prices 
sufficiently  low  to  retain  the  support  of  its  mem- 
bers. 

12.  Cooperative  wholesale  societies. — There  are 
several  types  of  wholesale  cooperation  in  the  United 
States.  One  is  combination  of  cooperative  retail 
stores.  There  are  several  national  and  sectional 
wholesale  societies  of  this  sort.  The  largest  has  a 
national  organization  with  wholesale  branches  in  va- 
rious cities  thruout  the  country.  In  some  instances 
strong  central  control  is  exercised ;  active  propaganda 
is  carried  on  to  encourage  the  formation  of  additional 
cooperative  retail  store  members,  and  these  stores 
are  required  to  conform  to  the  rules  of  the  whole- 
sale society.  In  other  instances,  the  wholesale  organi- 
zation has  more  of  a  federated  nature;  the  member 
stores  operate  independently,  using  the  wholesale  so- 
ciety only  for  the  making  of  mass  purchases. 

13.  Cooperation  with  prodiCcers'  organizations. — 
Some  cooperative  wholesale  societies  admit  to  their 
membership  not  only  retail  cotiperative  stores  but  also 


» 


122       MARKETING  AND  MERCHANDISING 


farmers'  organizations  designed  to  get  better  prices 
for  their  members'  products.  Such  wholesale  socie- 
ties act  both  as  selling  and  as  buying  agents.  Whole- 
sale  cooperatives  often  form  connections  with  coopera- 
tive packing  plants,  cooperative  dairy  organizations, 
cooperative  factories,  and  other  cooperative  producing 
groups,  acting  as  the  exclusive  outlets  for  their  prod- 

UC«L2i* 

14.  Cooperative  jobbing  houses. — Privately  owned 
retail  stores  are  more  and  more  looking  toward  whole- 
sale cooperation  as  a  means  of  increasing  their  ability 
to  compete  with  chain  stores  and  other  retail  establish- 
ments that  have  the  advantages  of  size  and  large  buy- 
ing power.  A  common  form  is  the  wholesale  buying 
syndicate — several  stores  combine  their  purchases  of 
staples,  thru  some  member  of  the  group  or  thru  a  cen- 
tral office.  The  syndicate  may  or  may  not  maintain  a 
warehouse  for  the  receipt  and  storing  of  its  group 
purchases.  A  further  development  of  the  retail  buy- 
ing syndicate  is  the  regularly  established  wholesale 
house,  owned  exclusively  by  the  retailers  whom  it 
serves.  One  such  house  has  over  one  thousand  mem- 
bers in  a  single  city.  Cooperative  wholesale  syndi- 
cates or  jobbing  houses  may  buy  only  on  requisition 
by  the  members,  or  they  may  buy  for  stock  and  take 
advantage  of  a  favorable  market,  just  as  any  indepen- 
dent jobber  does.  Most  of  them  sell  only  for  cash. 
They  have  no  advertising  or  selling  expenses,  other 
than  the  cost  of  mere  announcements  to  their  members 
and  an  occasional  representative  who  is  an  order-taker 


COOPERATIVE  BUYING  GROUPS 


123 


rather  than  a  salesman.     Ordinarily  they  have  no  de- 
livery expenses. 

15.  Wholesale  semi-cooperation. — A  final  form  of 
wholesale  cooperation  is  typified  by  the  relatively 
loose  organizations  of  independent  retail  druggists 
who  are  served  by  the  United  Drug  Company  (Rex- 
all  Stores)  and  the  American  Druggists  Syndicate. 
The  central  organization  supplies  its  members  with 
products  of  its  own  manufacture,  and  in  some  instan- 
ces backs  them  with  national  advertising.  Similar 
organizations  are  found  among  jewelers,  shoe  dealers, 
tobacco  stores,  and  in  a  few  other  fields.  Retail  mem- 
bers of  organizations  of  this  type  may  buy  only  part 
of  their  stock  cooperatively. 

16.  Cooperative  strength. — As  has  been  pointed 
out,  the  strength  of  cooperation  abroad  is  derived 
from  its  political  as  well  as  from  its  economic  aspects. 
To  an  extent,  it  has  the  same  source  of  strength  in 
America.  The  most  successful  cooperative  stores  are 
those  that  appeal  to  class  feeling.  To  the  extent 
that  they  can  do  this,  they  have  an  element  of  competi- 
tive strength  denied  to  the  privately  owned  store. 
Sentiment,  however,  is  a  poor  basis  for  permanent 
business  success.  The  class  appeal  alone  can  not 
bring  success.  Unless  cooperation  can  give  the  con- 
sumer satisfactory  service  and  actually  lower  prices,  it 
has  no  excuse  for  existence  and  can  not  survive. 
When  cooperation  does  lower  net  selling  prices,  it 
does,  so  because  of  (1)  management  economies 
brought  about  usually  by  eliminating  credit,  delivery, 


124       MARKETING  AND  MERCHANDISING 


♦  •! 


«        t. 

1 


aod  other  customary  forms  of  service,  (2)  elimina- 
tioe  of  profit,  and  (3)  in  the  case  of  wholesale  co- 
operatives, by  massed  buying. 

17.  Cooperative  weakness. — Cooperative  buying 
groups  have  important  elements  of  competitive  weak- 
ness. The  weaknesses  can  be  overcome,  but  they  are 
always  potential  sources  of  difficulty  in  holding  trade. 
The  first  elefment  of  weakness  is  one  that  is  common 
to  all  cooperative  enterprises — the  relative  ineffective- 
ness of  cooperative  management  as  compared  with 
the  more  efficient  management  which  derives  its  in- 
centive from  the  hope  of  profits.  Successful  mer- 
chandising demands  the  taking  of  risks.  The  hired 
manager  of  a  cooperative  is  less  inclined  to  make  bold 
merchandising  strokes  than  the  profit-taking  distribu- 
tor who  is  responsible  only  to  himself  for  results. 
Again  the  hired  manager  may  be  less  watchful  of  ex- 
pense  leaks  than  the  individual  proprietor.  That 
these  are  real  obstacles  to  success  in  many  cases  is 
proved  by  the  high  mortality  among  cooperative 
stores  in  the  United  States. 

Other  sources  of  weakness  are  found  in  the  restric- 
ted service  of  cooperatives.  If  the  cooperative  deals 
only  for  cash  and  makes  no  deliveries,  its  membership 
must  always  exclude  those  who  need  or  are  willing  to 
pay  for  credit,  delivery,  and  other  forms  of  service. 
Most  cooperatives  handle  limited  lines  of  goods. 
They  can  afford  to  stock  only  items  in  constant  de- 
mand by  most  of  the  members,  leaving  privately 


COOPERATIVE  BUYING  GROUPS 


125 


owned  stores  to  satisfy  the  members'  requirements  for 
less  staple  lines.  Consistent  loyalty  to  the  coopera- 
tive is  difficult  to  obtain.  It  takes  a  high  degree  of 
.ideahsm  for  a  member  to  resist  the  temptation  of  bar- 
gain prices  elsewhere,  or  to  give  his  future  dividend 
from  the  cooperative  equal  weight  with  a  present  ad- 
vantage to  be  gained  by  transferring  his  trade  to  an 
establishment  where  prices,  assortments  and  service 
are  presented  to  him  in  an  attractive  way.  Finally, 
many  cooperatives  have  difficulty  in  entering  into  di- 
rect buying  relations  with  manufacturers,  and  with 
the  result  that  patrons  of  cooperatives  are  at  times 
unable  to  buy  the  particular  brands  of  goods  that  they 
desire. 

18.  The  manufacturer's  problems. — The  activities 
of  cooperatives  present  a  difficult  problem  to  the 
manufacturer.  Shall  he  sell  to  cooperatives  on  the 
same  basis  as  that  on  which  he  sells  to  independent 
dealers?  To  the  extent  that  he  is  left  any  choice  in 
the  matter  by  the  Federal  Trade  Commission,  court 
decisions,  and  legislation,  his  decision  must  be  based 
on  a  careful  evalution  of  the  conflicting  factors  in  the 
problem.  He  wants  all  the  trade  he  can  get,  but  he 
wants,  too,  to  avoid  disrupting  his  market  and  to  re- 
tain the  support  of  other  dealers.  If  a  manufactiu'er 
sells  to  a  cooperative  and  the  cooperative  cuts  prices, 
he  may  find  it  difficult  to  sell  to  regular  distributors. 
If  he  sells  to  a  buying  syndicate,  he  is  likely  not  to 
find  the  competing  local  dealers  cordial  toward  him  or 


I 


h 


I 


126       MARKETING  AND  MERCHANDISING 


his  goods.  If  he  sells  to  cooperatives,  what  price 
shall  he  charge  them?  The  following  suggestions 
may  be  found  applicable  to  the  majority  of  cases: 

(a)  If  a  retail  cooperative  maintains  an  established 
store,  performing  the  ordinary  functions  of  creating 
time  and  place  utility  for  manufacturer  or  jobber,  it 
is  entitled  to  regular  wholesale  prices. 

(b)  If  a  retail  buying  syndicate,  without  an  es- 
tablished store,  seeks  to  buy  direct  from  manufacturer 
or  jobber,  it  may  be  entitled  to  a  price  based  on  quan- 
tity, but  it  is  not  entitled  to  a  wholesale  price  which 
takes  into  consideration  not  only  size  of  the  unit  sale 
but  also  the  stock-carrying  service  and  selling  aid  of 
the  ordinary  retail  store. 

(c)  If  a  group  of  retailers,  cooperatively  or  on 
some  other  basis,  control  their  own  wholesale  estab- 
lishment, which  performs  the  regular  jobbing  func- 
tions of  storage,  credit  carrying,  intensive  covering  of 
the  territory,  and  breaking  up  of  large  shipments  into 
small  ones,  the  wholesale  cooperative  is  entitled  to 
regular  jobbing  discounts,  regardless  of  who  owns  its 
stock  or  the  way  in  which  it  is  controlled. 

(d)  If  a  wholesale  cooperative  or  buying  syndicate 
offers  to  the  manufacturer  a  service  less  than  that  of- 
fered by  the  ordinary  jobber,  it  is  entitled  only  to  a 
jobbing  discount  measured  by  the  extent  of  its  own 
service  to  the  manufacturer  compared  to  the  kinds 
of  service  for  which  the  regular  jobbing  discount  is 
intended  to  pay. 


COOPERATIVE  BUYING  GROUPS 


REVIEW 


127 


What  is  the  aim  of  the  cooperative  store? 

Trace  the  growth  of  the  cooperative  movement  abroad  and 
in  the  United  States. 

Why  has  the  movement  made  such  strides  abroad  as  compared 
with  its  slow  progress  in  the  United  States? 

Define  (a)  retail  cooperation,  (b)  wholesale  cooperation, 
(c)  jobber  combinations. 

Describe  some  forms  of  retail  and  wholesale  cooperation. 

What  is  the  purpose  of  the  wholesale  buying  syndicate? 

Name  some  of  the  points  of  strength  and  weakness  of  the 
cooperative  movement. 

How  should  the  manufacturer  be  guided  in  his  dealings  with 
cooperatives  ? 


I 


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CHAPTER  IX 


[ « ^1  li 


1 

'I 


STUDY  OF  THE  PRODUCT 

1.  Necessity  of  a  marketing  /)ian..— Neither  adver- 
tising nor  salesmen  can  bring  success  to  a  business 
unless  its  selling  plan  and  policy  are  right.  Selling 
goods,  like  winning  battles,  must  be  planned  in  ad- 
vance. A  factory  or  a  store  with  something  to  sell 
must,  before  the  selling  starts,  study  trade  relations, 
the  product,  the  market,  and  the  methods  of  reach- 
ing the  market.  These  studies  are  unavoidable  pre- 
requisites to  a  carefully  planned  selling  procedure. 
Opposed  to  a  well-planned  procedure  are  the  hit-or- 
miss,  unplanned' trials  of  this  scheme  or  that— the 
vacillating,  wavering  attitude  of  the  man  who  does 
not  know  exactly  what  he  wants  to  do  or  how  he  wants 
to  do  it,  and  who  opens  his  mind  and  his  purse  to  every 
will-o'-the-wisp  scheme  that  is  suggested  to  him  by 
those  who  want  his  money.  The  manufacturer  or 
merchant  who  tries  to  sell  in  that  way  has  only  a 
gambler's  chance  to  succeed. 

Even  the  most  intensive  study  and  planning  pre- 
paratory to  marketing  or  merchandising  do  not  elim- 
inate a  large  element  of  uncertainty.  Human  judg- 
ments are  fallible,  and  deductions  from  investigations 
and  study  of  the  marketing  problem  are  always  sub- 

128 


STUDY  OF  THE  PRODUCT 


129 


ject  to  the  judgments  of  the  individual.  The  pur- 
pose of  careful  planning  in  advance  is  to  reduce,  altho 
not  to  eliminate,  the  risks  always  present  in  a  business 
enterprise.  These  risks  are  necessarily  so  great  that 
one  who  does  not  do  all  in  his  power  to  reduce  them 
can  not  be  thought  of  as  conducting  a  business— he  is 
merely  playing  a.  game  of  chance  with  the  odds 

against  him. 

2.  Importance  of  trade  relations. — In  developing 
a  selling  plan,  the  study  of  trade  relations  is  first  in 
importance.  This  study  enables  the  man  with  some- 
thing to  market  to  know  the  various  ways  of  reaching 
the  people  who  might  buy  his  goods,  and  it  suggests 
a  solution  of  some  of  the  many  vital  problems  in- 
volved in  the  manipulation  of  the  complicated  links 
in  the  chain  of  distribution.  Because  trade  relations 
constitute  the  largest  single  problem  of  the  average 
manufacturer  or  distributor,  and  because  failure  or 
success  in  selecting  and  using  the  channels  of  distribu- 
tion is  one  of  the  important  causes  of  business  failure 
or  success,  the  subject  of  trade  relations  has  been 
placed  first  in  this  Text.  It  has  been  treated  in  de- 
tail in  the  preceding  chapters. 

3.  Scope  of  the  discussion. — ^Besides  a  study  of 
trade  relations,  tliere  must  be  study  of  the  product, 
study  of  the  market,  and  selection  of  methods  of  reach- 
ing the  market.  In  the  present  chapter  and  those 
that  follow  there  is  first  a  summary  outline  of  the 
many  points  to  be  given  consideration,  with  later  de- 
tailed treatment  of  some  of  the  more  important  of 


STUDY  OF  THE  PRODUCT 


131 


i 


130       MARKETING  AND  MERCHANDISING 

them.  The  enumeration  of  points  to  be  investigated 
is  not  intended  to  be  inclusive  of  everything  that 
might  be  studied  in  connection  with  the  problems  of 
any  particular  business.  To  do  so  would  enter  into 
a  discussion  of  the  ahnost  countless  refinements  of  re- 
search methods  appropriate  when  problems  of  specific 
business  enterprises  are  under  consideration.  It  is 
sufficient  here  to  suggest  some  of  the  classes  of  things 
that  should  be  considered — ^to  point  out  guide-posts 
which  will  be  useful  to  the  average  investigator  of 
commercial  practices  and  possibilities. 

The  Text  does  not  discuss  the  technic  of  investiga- 
tions or  the  sources  from  which  information  may  be 
obtained.  Research  technic  has  not  yet  been  devel- 
oped as  an  art;  any  one  with  a  mind  to  find  out  the 
necessary  things  to  help  him  build  a  logical  selling 
plan  can  readily  find  ways  of  seeking  out  the  things 
he  needs  to  know.  Sources  of  information  for  the 
many  thousands  of  diverse  selling  problems  are  nu- 
merous. In  government  statistics,  trade  publications 
and  other  printed  sources  there  is  a  wealth  of  helpful 
data,  which  should  usually  be  supplemented  by  field 
investigations  carried  on  by  mail  and  in  person. 

4.  Analysis  in  business. — Analysis  in  business  is 
not  new.  It  has  always  been  applied  in  the  produc- 
tive end  of  industry.  Managers  seldom  decide  ar- 
bitrarily that  such  and  such  a  change  shall  be  made  in 
their  plant  or  their  product  and  forthwith  order  it 
done.  They  recognize  that  mechanical  problems 
must  be  studied  and  analyzed  and  they  usually  reserve 


decisions  until  competent  engineers  have  done  their 
part  of  the  work.  Yet  the  same  managers  who  study 
their  manufacturing  problems  wisely  often  compla- 
cently order  large  expenditures  in  new  sales  activities 
without  study,  investigation,  or  analysis,  merely  on 
the  strength  of  personal  opinion  based  on  inadequate 
information. 

Such  procedure  may  be  excused  by  pleading  the 
lack  of  standards  in  marketing  and  merchandising, 
but  the  plea  is  not  tenable.  For  every  business 
there  are  certain  standards;  investigation  will  bring 
them  to  light  and,  if  no  attempt  is  made  to  ferret  them 
out,  the  chances  of  success  are  no  better  than  they 
deserve  to  be.  It  is  an  offense  against  common  sense 
to  put  money  into  undigested  marketing  schemes. 
The  making  of  a  good  marketing  plan  is  chiefly  a  mat- 
ter of  common  sense,  and  common  sense  is  only  an- 
other name  for  logical  thinking  based  on  exact  knowl- 
edge of  all  the  pertinent  facts  in  the  case. 

5.  Manufacturer's  point  of  view. — The  point  of 
view  in  the  present  discussion  of  study  of  the  product, 
of  the  market,  and  of  methods  of  reaching  the  market 
is  chiefly  that  of  the  manufacturer.  His  problems  in- 
clude those  of  all  distributors  as  well.  The  whole- 
saler has  many  of  the  same  marketing  problems  as  the 
manufacturer.  Special  problems  of  retail  and  whole- 
sale merchandisers  are  discussed  in  later  chapters  in 

the  Text. 

6.  When  analysis  should  be  made. — Three  occas- 
ions should  prompt  a  manufacturer  or  distributor  to 


u 


132       MARKETING  AND  MERCHANDISING 


STUDY  OF  THE  PRODUCT 


133 


♦ 


f 


make  careful  analysis  of  his  marketing  problems :  ( 1 ) 
before  he  begins  business ;  ( 2 )  when  he  wishes  to  add 
advertising  to  his  other  selling  activities  and  finds  it 
necessary  to  investigate  and  chart  facts  hitherto  ne- 
glected ;  and  ( 3 )  when  he  awakens  to  the  necessity  of 
greater  competitive  efficiency,  and  decides  to  abandon 
hit-or-miss  procedure  and  to  substitute  for  it  carefully 
considered  policies  based  on  known  facts.  We  shall 
consider  chiefly  the  man  about  to  start  in  business,  be- 
cause the  things  to  be  considered  then  are  inclusive 
of  all  that  might  be  studied  later. 

7.  Four  functions  of  business. — The  relation  of  pre- 
liminary study  to  marketing  policies  is  shown  by  the 
following  chart : 


A  study  of    Determines  the 


The  Product 
The  Market 
The  Trade 
Channels 


Sales  and 

Advertising 

Plans 


Which,  in  turn,  depend 
on 
Finance, 
Production, 
Administration 


Selling,  altho  one  of  the  four  great  functions  of 
business,  can  never  be  studied  or  practiced  alone.  To 
be  successful,  it  must  be  adjusted  to  financial  limita- 
tions  and  requirements,  it  must  never  lose  sight  of  its 
close  partnership  with  production,  and  it  must  be  so 
closely  interwoven  with  administrative  policies  that 
the  selling  procedure  will  honestly  and  accurately 
mirror  the  ideas  and  the  ideals  of  the  men  who  control 
the  business.     Many  sales  efforts  have  failed  when 


they  were  not  based  on  due  regard  for  financial  con- 
sideration, when  the  optimism  of  the  sales  force  was 
founded  on  something  less  substantial  than  the  cold 
facts  of  production  possibilities,  or  when  the  sales  or 
advertising  manager  did  not  properly  interpret  the 
spirit  and  purpose  of  the  business  whose  goods  he 
tried  to  sell.  Finance,  production,  selling,  and  ad- 
ministration must  work  as  sympathetic  partners; 
otherwise  even  the  most  carefully  planned  selling  ef- 
forts will  be  ineffective. 

8.  Txico  purposes  of  product  and  market  analysis. — 
A  study  of  the  product  and  of  the  market  results  in 
finding  out  things  about  the  business  which  ( 1 )  help 
in  selecting  methods  of  reaching  the  market  and  in 
making  proper  sales  and  advertising  plans  and  poli- 
cies and  ( 2 )  help  the  seller  to  select  the  most  effective 
selling  points  for  his  product.  The  things  to  be  stud- 
ied are  not  always  the  same  for  these  two  different 
purposes.  We  shall  outline  first  the  nature  of  the 
investigation  of  the  product  which  has  for  its  purpose 
the  making  of  plans  to  reach  the  market. 

9.  Making  sure  of  the  product. — At  the  outset 
there  should  be  tests  to  prove  that  the  product  is 
right,  that  it  will  do  the  things  the  manufacturer 
wants  it  to  do.  Rushing  into  a  market  with  an  un- 
tried product  is  dangerous  and  often  expensive.  Un- 
less the  product  is  right,  even  the  most  carefully 
planned  sales  methods  will  fail.  There  should  first  be 
technical  tests  in  the  laboratory  or  shop  to  find  out 
as  far  as  possible  that  the  product  will  stand  up  under 


'  ri 


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m 

f 


U 


134       MARKETING  AND  MERCHANDISING 

usage  or  otherwise  accomplish  its  purpose.  The  man- 
ufacturer of  a  well-known  food  product  experimented 
for  years  to  get  it  exactly  right.  Literally  hundreds 
of  times  the  company  thought  the  product  was  ready 
for  the  market,  only  to  find  after  exhaustive  tests  that 
changes  were  still  necessary.  Manufacturers  of  auto- 
mobiles and  automobile  equipment  have  found  by 
costly  experience  the  value  of  subjecting  their  prod- 
ucts to  the  most  searching  tests  that  could  be  devised 
before  offering  them  to  the  public. 

Technical  tests  are  not  alone  sufficient.  There 
should  also  be  practical  tests  to  prove  the  product 
will  operate  in  the  hands  of  the  average  user  as  well  as 
it  operates  in  the  laboratory.  Almost  no  expenditure 
of  time  or  money  is  too  great  at  the  outset  to  insure 
the  manufacturer  against  the  disasters  likely  to  fol- 
low the  premature  exploiting  of  an  unproved  product. 

10.  Effect  of  raw  material  prices. — Conditions  of 
manufacture  should  receive  careful  study.  Among 
them  is  the  problem  of  raw  materials.  As  far  as  sell- 
ing policies  are  concerned,  the  most  important  con- 
sideration affecting  ingredients  is  the  degree  of  sta- 
bility of  prices.  Relatively  steady  selling  prices  are 
advantageous,  particularly  if  the  product  is  to  be  ad- 
vertised and  sold  thru  middlemen.  If  raw  material 
costs  are  unstable,  selling  prices  of  the  finished  prod- 
uct must  be  set  so  as  to  give  a  profit  even  when  the 
raw  material  market  is  abnormally  high.  Packaged 
food  products  illustrate  this  situation.  The  manu- 
facturer must  be  a  close  student  of  raw  materials,  in 


STUDY  OF  THE  PRODUCT 


135 


order  to  anticipate  conditions  that  may  vitally  affect 
his  gross  profits  and  the  margin  that  he  may  safely 
allow  for  selling  expenses. 

11.  Who  controls  the  raw  material? — Does  the 
manufacturer  control  a  supply  of  raw  materials  or 
must  he  depend  on  others  for  it  ?  In  a  stable  or  rising 
market  the  manufacturer  who  owns  his  sources  of  raw 
materials  may  more  safely  plan  long  in  advance  with 
respect  to  selling  prices,  competitive  activities  and  ex- 
pansion than  the  manufacturer  who  must  buy  his  raw 
materials  in  the  open  market.  When  the  market  is 
unstable  or  declining,  the  manufacturer  owning  his 
sources  of  supply  may  be  at  a  disadvantage;  the  in- 
ability to  take  advantage  of  low  market  prices  may 
force  a  conservative  marketing  policy. 

12.  Capacity  of  the  plant. — ^Does  plant  capacity  re- 
quire limited  selling  efforts?  If  the  output  is  small, 
can  it  be  more  economically  sold  locally  or  distributed 
widely  among  scattered  users?  To  what  extent  will 
plant  capacity  permit  sales  efforts  on  a  national  basis  ? 
If  the  business  is  an  established  one,  increased  selling 
activity  is  absolutely  dependent  on  the  opportunity 
to  get  more  out  of  the  present  plant,  or  on  the  oppor- 
tunity to  increase  the  factory  equipment. 

13.  Manufacturing  costs. — The  cost  of  manufac- 
ture is  one  of  the  starting  points  in  the  outlining  of  a 
.selling  plan.  It  is  true  that  goods  are  usually  sold  at 
the  price  they  can  be  made  to  command,  instead  of  on 
a  mathematical  basis  of  cost-to-make  plus  cost-to-sell 
plus  amount  of  profit  desired.     The  selling  price 


4 
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136       MARKETING  AND  MERCHANDISING 

must,  however,  cover  all  of  these  three  items.  If  the 
selling  price  is  largely  fixed  by  competition,  the  maxi- 
mmn  amount  that  can  be  spent  for  selUng  is  defi- 
nitely fixed  by  the  cost  of  manufacture  on  the  one 
side  and  by  the  minimum  profit  that  will  be  acceptable 
on  the  other.  It  may  seem  unnecessary  to  urge  man- 
ufacturers to  base  their  selling  efforts  on  a  definite 
knowledge  of  costs.  Yet  this  will  continue  to  be 
necessary  until  a  knowledge  of  exact  costs  in  business 
is  the  rule  rather  than  the  exception  as  it  probably 
is  today. 

14.  Financial  considerations. — ^W^hat  part  of  the 
capital  of  the  business  can  be  used  for  marketing? 
What  increased  production  will  the  present  capital 
provide  for?  If  more  capital  is  needed,  can  it  be 
economically  obtained?  Will  net  profits  from  in- 
creased output  and  sales  be  sufficient  to  justify  in- 
creased capital?  Financial  considerations  should  be 
uppermost  in  the  mind  of  the  seller.  The  owner  of 
the  business  is  subject  to  ''the  tyranny  of  the  balance 
sheet."  The  sales  manager  must  be  equally  control- 
led by  its  influence.  The  rate  of  return  that  must  be 
paid,  the  willingness  of  stockholders  to  await  returns 
until  an  ambitious  sales  plan  may  have  brought  its  ex- 
pected results — all  these  things  and  many  others  will 
be  carefully  considered  by  the  manufacturer  who 
gives  due  regard  to  the  basic  importance  of  finance  in 
all  industry. 

Assume  the  existence  of  a  business  with  large  and 
readily  available  financial  resources.    It  can  manu- 


STUDY  OF  THE  PRODUCT 


137 


facture  goods  largely  for  stock  to  meet  seasonal  de- 
mand.    It  can  establish  its  own  wholesale  distributing 
points  thruout  the  country  and  thus  enable  retailers 
to  buy  frequently  and  conveniently.     It  can  grant 
long  credits  if  competitive  expediency  requires  them. 
It  can  experiment  with  styles  and  kinds.    It  can  make 
a  large  investment  in  advertising  with  the  knowledge 
that  the  favorable  public  opinion  it  seeks  to  build  up 
may  make  itself  felt  only  after  a  considerable  period. 
It  can  literally  select  its  seUing  methods  from  the 
whole  list  of  available  practices.     A  business  with 
small  capital,  on  the  other  hand,  may  be  forced  to  do 
what,  with  more  capital,  it  might  not  elect  to  do.     It 
may  find  it  necessary  to  deal  thru  jobbers,  because  it 
can  not  afford  the  selling  organization  to  reach  re- 
tailers or  the  risk  of  loss  in  handling  retail  credits.     In 
a  seasonal  industry  it  may  be  unable  to  manufacture 
for  stock  and,  when  depending  on  uncertain  advance 
orders  from  dealers,  it  may  be  unable  to  run  its  plant 
continuously  or  economically. 

15.  Bulk  or  package  sales. — ^What  is  the  nature  of 
the  product?  Is  it  sold  in  bulk  or  in  packages?  If 
the  product  can  not  be  identified  in  some  unmistake- 
able  way,  there  may  be  no  possibility  of  effective  ad- 
vertising. If  it  must  be  sold  without  identifying 
marks  and  the  s^ale  is  made  thru  middlemen,  the 
transactions  with  dealers  must  be  largely  on  a  price 
basis.  In  a  competitive  market  where  price  is  the 
chief  weapon,  the  selling  methods  are  very  different 
from  those  designed  chiefly  to  build  consumer  good- 


li 


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fi 


ji 


if 


4. 


138       MARKETING  AND  MERCHANDISING 

will  and  consumer  knowledge  of  the  name  and  repu- 
tation of  the  product. 

16.  What  is  the  product  for? — Is  the  product  in- 
tended  for  use  in  manufacturing,  is  it  for  equipment 
for  some  other  product,  or  is  it  for  consumption  with- 
out regard  to  other  processes  or  products  ?  A  prod- 
uct used  in  manufacturing,  must  largely  be  sold  di- 
rect. Formerly  it  was  thought  not  to  be  subject  to 
advertising.  Altho  this  belief  has  been  disproved 
by  the  advertising  success  of  manufacturers  of  white 
lead,  special  kinds  of  steel  and  other  products,  the 
manufacturers  of  goods  that  are  consumed  in  other 
manufacturing  processes  has  an  admittedly  difficult 
task  in  arousing  public  interest  in  his  product.  If  the 
product  is  for  equipment  purposes,  sales  channels  will 
vary  with  the  other  products  on  which  it  is  used. 
Manufacturers  of  automobile  parts  sell  usually 
directly  to  makers  of  automobiles.  Here  too  the  ad- 
vertising problem  is  difficult.  If  the  consumer  buys 
an  automobile  as  a  whole,  instead  of  a  set  of  bearings, 
his  interest  in  the  bearings  can  not  be  expected  to  be 
as  great  as  it  would  be  if  he  paid  his  money  for  the 
bearings  alone.  The  tremendous  power  of  advertis- 
ing is  perhaps  illustrated  in  no  better  way  than  in  the 
success  of  manufacturers  of  equipment  who  have  built 
large  sales  on  the  indirect  patronage  and  good-will  of 
the  ultimate  consumer.  Products  intended  for  final 
consumption  without  change  in  form  and  without  re- 
lation to  other  products  are  not  subject  to  the  limi- 
tations surrounding  the  marketing  of  goods  for  manu- 


STUDY  OF  THE  PRODUCT 


139 


facturing  or  for  equipment.  The  producer  of  con- 
sumption goods  has  the  whole  range  of  selling  pro- 
cedure from  which  to  choose. 

Irrespective  of  the  way  in  which  the  uses  of  prod- 
uct may  affect  the  selling  policies,  it  is  evident  that 
the  several  uses  to  which  the  product  may  be  put,  the 
various  services  which  it  may  render  the  consumer,  are 
among  the  most  important  points  to  be  covered  in  the 
study  of  ,the  product.  No  other  analysis  can  be  more 
useful  than  the  consideration  of  these  uses  and  the 
adequacy  of  the  product  to  serve  them.  The  effort  to 
ascertain  all  of  the  uses  which  it  may  serve  sometimes 
reveals  uses  that  have  been  entirely  neglected.  Ef- 
fective publicity  and  sales  effort  are  often  centered 
upon  what  are  termed  new  uses  for  old  products. 

17.  Changes  in  the  product.— wM^nst  the  product  be 
improved  before  large  future  sales  can  be  assured? 
A  product  good  enough  to  get  moderate  business 
may  not  be  good  enough  to  build  a  really  large  busi- 
ness. Is  the  product  in  danger  of  being  superseded 
by  others  ?  What  are  the  qualities  lacking  that  leave 
open  the  door  to  new  competition?  Is  the  market 
fairly  well  saturated  with  the  product  in  its  present 
form,  and  must  some  marked  change  be  made  to 
justify  largely  increased  business?  Changes  in  the 
product  are  often  the  first  step  in  an  intensive  effort 
to  get  more  customers.  A  safety  razor  manufacturer 
.with  an  established  business  on  a  competitive  tj^pe  of 
razor  gave  his  business  a  fresh  impetus  by  radically 
changing  his  method  of  construction  and  his  compet- 


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I 


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i 


140       MARKETING  AND  MERCHANDISING 

itive  selling  appeal.  The  first  manufacturer  to  put 
all  his  sales  effort  behind  his  shaving  cream  reaped  a 
rich  reward  in  a  market  where  he  would  have  had 
difficulty  in  getting  a  foothold  in  competition  with 
the  established  manufacturers  of  shaving  sticks. 

18.  Possibility  of  standardization. — A  fertile  source 
of  inquiry  is  into  the  possibility  of  standardizing  prod- 
uct where  there  is  a  long  line  of  sizes  and  styles.  It 
is  probably  accurate  to  say  that  there  is  scarcely  a 
manufacturer  who  could  not  advantageously  reduce 
the  number  of  items  in  his  line.  It  is  obvious  that 
restriction  and  standardization  of  output  result  in  in- 
creased manufacturing  efficiency  and  decreased 
manufacturing  cost.  It  should  be  equally  obvious 
that  they  result  in  increased  selling  efficiency.  Gen- 
erally speaking,  it  is  necessary  to  satisfy  demand  but 
it  is  not  necessary  to  load  a  line  with  products  that 
add  to  confusion  and  expense  and  that  result  in  scat- 

• 

tered  sales  effort.  The  manufacturer,  who  makes 
what  he  can  make  and  sell  economically  and  effec- 
tively and  who  does  not  bow  to  expediency  by  adding 
lines  and  styles  at  the  whim  of  scattered  individuals, 
will  ultimately  be  in  a  stronger  position  than  the  one 
whose  desire  for  present  business  is  such  that  he  bur- 
dens himself  with  a  line  consisting  chiefly  of  relatively 
unprofitable  or  inactive  numbers. 

19.  Can  the  product  be  sold? — Between  study  of 
the  product  and  study  of  the  market  lies  a  field  for 
investigation  that  reaches  out  and  overlaps  on  each 
side.     This  is  the  study  of  the  product  in  its  relation 


STUDY  OF  THE  PRODUCT 


141 


to  demand.  Simultaneous  with  the  first  plan  for  the 
product  in  the  manufacturer's  mind  should  be  the 
thought,  "Will  the  public  want  it?  Is  it  worth 
while  to  make  it  ?  Will  there  be  sufficient  demand  for 
it  to  warrant  putting  time  and  money  into  it?"  The 
answer  should  not  always  be  in  the  affirmative.  Mil- 
lions of  dollars  of  hard-earned  savings  are  invested  in 
the  products  of  inventors'  dreams,  which,  for  all  their 
ingenuity,  have  but  little  practical  value.  If  the  an- 
swer is  in  the  affirmative,  at  some  stage  in  the  plan 
there  must  be  careful  consideration  of  the  points 
which  follow. 

20,  Nature  of  demand. — Is  the  demand  expressed 
or  unexpressed?     Do  people  now  realize  that  they 
want  the  article,  or  must  they  be  educated  to  their 
need  of  it?     If  the  product  is  one  of  a  number  of  sim- 
ilar products,  the  manufacturer  will  be  helped  by  the 
selling  effort  of  others,  and  he  ordinarily  will  have 
precedents  to  guide  him  in  selecting  the  most  effective 
selling  route.     If  he  is  a  pioneer,  the  problem  is  much 
more  difficult.     The  manufacturer  of  a  new  soap  will 
find  satisfactory  routes  to  the  market  already  laid  out 
for  him;  he  can  survey  the  practices  of  others  and 
bring  competitors'  experiences  to  the  solution  of  his 
own  problem.     The  first  manufacturer  of  a  dictating 
machine,  on  the  other  hand,  had  a  serious  marketing 
problem  to  solve  before  he  began  to  get  returns  on 
his  investment.     When  demand  is  latent  and  unex- 
pressed, the  manufacturer  must  expect  slow  growth 
and  he  must  bring  to  his  aid  all  the  results  of  careful 


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142       MARKETING  AND  MERCHANDISING 

study  of  the  product  and  the  possible  market  so  as  to 
reduce  as  far  as  he  can  the  waste  of  false  starts  and 
the  uncertainty  of  untried  methods. 

21.  Brand  conscimsness. — Closely  allied  with  the 
nature  of  demand  is  the  degree  of  brand  consciousness 
in  the  market.  Is  the  sort  of  thing  the  manufacturer 
is  producing  asked  for  ordinarily  by  brand  name,  or 
does  the  consumer  purchase  without  regard  to  the 
name  of  the  manufacturer?  Soda  crackers  were  for- 
merly sold  out  of  a  barrel.  A  courageous  manu- 
facturer took  them  out  of  a  barrel  and  put  them  into  a 
box.  He  established  a  brand  name  which  changed 
the  buying  habits  of  a  nation  and  blazed  the  trail  for 
all  cracker  manufacturers  who  have  followed  him. 
Many  products  are  still  sold  "out  of  a  barrel."  The 
degree  of  brand  consciousness  chiefly  affects  selhng 
methods  by  limiting  or  enlarging  the  possibilities  of 
advertising.  This  matter  is  considered  in  the  chapter 
on  National  Advertising  and  the  Dealer. 

22.  Influence  of  prejudices. — Are  there  any  con- 
sumer prejudices  which  the  manufacturer  must  take 
into  consideration?  There  is  some  prejudice  against 
the  activities  of  house-to-house  solicitors.  The  pro- 
ducer selecting  that  method  of  selling  must  expect 
difficulty  in  breaking  down  this  prejudice.  There  is 
a  prejudice  against  some  selling  prices.  A  com- 
modity in  some  fields  priced  at  fifteen  cents  carries  a 
handicap  in  competing  for  popular  favor.  People 
are  prejudiced  against  certain  kinds  of  canned  foods; 
wrist  watches  before  the  Great  War  could  not  be  sold 


STUDY  OF  THE  PRODUCT 


143 


largely  to  men;  there  are  deep-rooted  prejudices  in 
favor  of  the  accepted  kinds  of  tooth-brushes,  towels, 
and  tennis  racquets.  Methods  of  packing  manu- 
factured goods  may  bump  against  traditional  prej- 
udices. The  shape  of  a  carton,  the  color  of  a  label, 
the  credit  terms  of  the  manufacturer — ^these  and  a 
host  of  other  things  may  jar  on  the  sensibilities  of  the 
customer.  A  manufacturer  may  set  out  with  the  def- 
inite purpose  of  overcoming  prejudices,  but  he  should 
at  least  do  so  with  his  eyes  opened  to  the  true  situation 
by  a  careful  survey  of  the  degree  of  receptivity  that  he 
is  likely  to  find  in  the  market. 

23.  Is  the  product  techmcal? — Is  the  product  one 
that  can  be  readily  used  or  operated  by  the  consumer, 
or  is  educational  work  necessary?  If  the  method  of 
consumption  or  use  is  obvious,  the  manufacturer  can, 
if  he  chooses,  sell  thru  jobbers  and  retailers.  If  he 
must  instruct  each  consumer  and  follow  up  the  in- 
struction with  inspection  and  service,  he  may  find  it 
advantageous  to  sell  direct. 

24.  Necessity  or  luxury. — The  selling  plan  will  be 
partly  influenced  by  the  classification  of  the  product 
as  a  necessity  or  luxury.  These  terms  are  merely 
relative ;  the  luxury  of  today  may  be  the  necessity  of 
tomorrow.  Typewriters  were  luxuries  at  first,  and  a 
system  of  intensive  selling  had  to  be  adopted  to  take 
them  out  of  the  luxury  class.  A  product  bought  by 
the  few  may  be  sold  to  jobbers,  to  retailers,  and  to 
consumers — to  any  one  who  will  buy,  in  short,  without 
danger  of  complicating  trade  relations.     A  product 


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144       MARKETING  AND  MERCHANDISING 

bought  by  the  many  must  usually  be  sold  in  accord- 
ance  with  a  strictly  predetermined  policy  so  as  to 
keep  the  good-will  of  the  essential  factors  in  its  dis- 
tribution and  so  as  to  reach  the  maximum  number  of 
consumers  at  a  minimum  cost. 

25.  Fad  or  staple.—!^  the  product  a  fad,  on  will  the 
demand,  once  created,  be  permanent?  If  it  is  a  fad, 
the  selling  campaign  must  be  quick  and  productive  of 
instant  results.  If  the  demand  will  be  permanent,  a 
considerable  investment  in  good- will  may  be  justified, 
and  the  plan  may  be  based  on  the  policy  of  going 
slowly  but  surely.  A  new  style  of  men's  hats,  based 
on  the  ephemeral  popularity  of  an  actor  or  other  pub- 
lic character,  must  be  pushed  to  the  utmost  while  the 
craze  lasts;  every  avenue  of  sales  must  be  cultivated, 
and  expediency  rather  than  established  policy  must 
govern  procedure.  A  new  roofing  preparation  would 
bring  returns  but  slowly;  the  manufacturer  would 
have  to  lay  the  firm  foundations  for  future  success  by 
a  careful  picking  of  sales  channels  and  by  husbanding 
his  resources  so  as  to  be  able  to  continue  his  efforts 
during  the  time  necessary  for  its  cumulative  effect  to 
oe  leii* 

26.  How  often  will  the  customer  buy? — How 
many  sales  will  be  made  to  a  customer?  A  new 
brand  of  shoes  might  be  pushed  continually  in  a 
given  territory  because  customers  could  be  induced 
to  buy  over  and  over  again.  A  manufacturer  of 
office  safes  must  constantly  find  new  buyers  for  his 
product.     The  consideration  of  whether  the  product 


STUDY  OF  THE  PRODUCT 


145 


is  to  be  a  "repeater"  or  is  to  sell  only  once  to  a 
customer  is  of  first  importance  in  planning  the  mar- 
keting campaign. 

27.  The  problem  of  selling  seasons. — Fmally, 
when  will  the  product  sell?  Is  it  in  use  all  the  year 
around,  or  is  it  seasonal?  Garden  seeds  can  not  be 
sold  in  the  same  way  as  fountain  pens.  The  man 
who  can  get  satisfactory  returns  from  his  selling 
efforts  twelve  months  in  the  year  will  do  business 
in  a  different  way  from  the  man  who  has  two  selling 
seasons  a  year  and  who  in  the  off-seasons  must  man- 
ufacture for  stock  or  close  his  plant.  The  same 
consideration  vitally  affects  the  amount  of  capital 
he  will  need,  the  credit  terms  he  must  give  to  the 
trade,  the  physical  means  he  adopts  to  get  his  goods 
thru  the  channels  of  trade,  the  profits  he  must  get  on 
individual  sales,  the  amount  and  kind  of  advertising 
that  he  can  economically  use  and  nearly  every  other 
factor  in  his  marketing  plans. 

SUMMARY  OF  STUDY  OF  THE  PRODUCT  IN  ITS 
RELATION  TO  METHODS  OF  REACHING 

THE  MARKET 

Making  suke  of  the  product 

Technical  tests 

Practical  tests 
Raw  materials 

Price  fluctuation 

Who  controls  them? 
Plant  capacity 
,     Present   capacity 

How  much  of  it  is  used? 


'! 


I 


146       MARKETING  AND  MERCHANDISING 

What  increase  in  business  can  be  cared  for? 
Opportunity  for  expansion 
Manufacturing  costs 

Effect  on  margin  for  sales  expense 
Effect  on  selling  prices 

FlNAN»CIAL    CONSIDERATIONS 

What  part  of  capital  can  be  used  for  marketing? 
How    much    increased    production    will    present    capital 
permit  ? 

Can  capital  be  increased? 
Is  increase  justified? 
What  fixed  charges  must  be  met? 
Must  returns  be  quick? 

Can  long-time  investments  be  made  in  distributing  ware- 
houses, advertising,   and  intensive  sales   efforts? 
Relation  of  capital  to  credit  policies 

To  what  extent  can  manufactured  stocks  be  accumulated? 
Nature  of  the  product 
Bulk  or  package  goods 
What  is  the  product  for? 
Need  of  changes  to  lessen  competition 
Possibility  of  standardization  of  sizes  and  styles 

SSMAND 

Can  the  product  be  sold  profitably? 

Is  demand  expressed  or  unexpressed? 

Brand  consciousness 

Influences  of  prejudices 

Relation  of  manufacturer  to  consumer 

Necessity  or  luxury? 

Fad  or  staple? 

How  often  will  consumer  buy? 

The  problem  of  selling  seasons 

REVIEW 

What  points  should  be  considered  in  developing  a  selling  plan  ? 
When  should  a  manufacturer  or  distributor  analyze  his  mar- 
keting problems? 


STUDY  OF  THE  PRODUCT 


147 


What  are  the  purposes  of  product  and  market  analyses? 

How  should  the  product  be  tested?         ,  ,  ,    .  , 

Discuss  the  bearing  on  the  marketing  plan  of  raw  materials, 
costs,  financial  considerations  and  the  nature  of  the  product 

Take  a  product  in  which  you  are  interested  and  lay  out  a 
selling  plan  for  it. 


ir 


,  i 


CHAPTER  X 

STUDY  OF  THE  MARKET 

1.  Why    study    the    market^ — The    market    is 
studied  to  find  out  the  most  effective  and  economical 
method  of  marketing  and  to  guide  the  seller  in  al- 
most every  detail  of  selHng  technic.     No  one  can 
sell  effectively  unless  he  has  intimate  knowledge  of 
the  people  who  compose  the  market,  where  they  live, 
when  they  buy,  how  they  buy,  how  much  they  can 
be  expected   to   buy,   and   from   whom   they   buy. 
Knowing  these  things,  he  is  in  a  position  to  direct 
his  own  competitive   efforts   along  lines  that   will 
bring  the  largest  returns  with  the  smallest  chance  of 
waste  and  failure.     The  market  facts  that  chiefly 
need  investigation  in  one  business  are  not  always  the 
same  as  those  of  most  importance  in  another  busi- 
ness.    This  chapter  outlines  the  main  points  of  a 
complete  market  analysis.     The  basic  questions  must 
be  answered  by  every  one  who  has  anything  to  sell. 
The  outline,  altho  applying  chiefly  to  a  manufac- 
turer's problems,  is  almost  equally  applicable  to  a 
wholesaler,  and  it  contains  many  suggestions  of  value 
to  the  retailer. 

2.  Who    comprise    the    market?— The    manufac- 
turer must  first  visualize  the  people  who  make  up  his 

148 


STUDY  OF  THE  MARKET 


149 


market.  Who  is  going  to  buy  his  product?  To 
whom  must  he  appeal?  He  must  know  not  only 
the  people  who  actually  do  the  buying  but  also  those 
who  influence  the  buying.  Men  buy  automobiles, 
but  boys  and  women  largely  influence  the  choice. 
The  family  piano  is  seldom  selected  by  the  man  who 
pays  the  bill.  The  question  as  to  the  precise  group 
of  people  who  should  be  the  chief  targets  of  the  sell- 
ing appeal  is  often  a  nice  problem,  requiring  great 
care  in  the  solution.  The  manufacturers  of  busi- 
ness phonographs  are  facing  this  problem  and  are 
doing  an  interesting  work  in  harmonizing  the  ap- 
parently conflicting  interests  of  typists  and  office 

managers. 

3.  Men,  women,  or  children? — Sex  and  age  are 
the  first  considerations  in  market  analysis.  A  sellmg 
talk  addressed  to  women  in  the  home  or  to  women 
readers  of  advertisements  is  usually  a  very  different 
thing  from  a  selling  talk  addressed  to  men.  Chil- 
dren are  appealed  to  in  still  a  different  way.  One 
of  the  interesting  developments  of  marketing  is  the 
growing  number  of  manufacturers  who  seek  to  estab- 
lish the  names  and  value  of  their  products  in  the 
minds  of  the  rising  generation.  The  products  adver- 
tised in  the  pages  of  the  juvenile  publications  are 
largely  the  same  as  those  advertised  to  adults.  There 
is  a  rapidly  increasing  number  of  products  that 
are  sold  to,  or  used  by,  boys  and  girls  exclusively. 
A  manufacturer  of  a  particular  kind  of  footwear 
had  assumed  that  his  market  was  almost  usually  di- 


, , 


i 


III 


''i 


III* 
t 


160       MARKETING  AND  MERCHANDISING 

vided  between  adults  and  juveniles.  .  A  careful  mar- 
ket analysis  proved  that  juvenile  trade  was  eighty 
per  cent  of  the  whole.  This  discovery  was  the  cause 
of  a  radical  change  in  the  sales  and  advertising  plan. 

4.  Influence  of  class. — To  what  class  do  the  pos- 
sible purchasers  belong?  Are  they  rich  or  poor? 
Does  the  product  appeal  chiefly  to  the  masses  or  the 
classes  ?  Automobile  tires  were  originally  sold  to  the 
well-to-do.  An  occasional  dealer  here  and  there  was 
adequate  to  satisfy  the  trade.  Prices  were  high, 
partly  because  of  relatively  small  production.  Ad- 
vertising appeared  in  publications  going  largely  to 
people  of  wealth.  All  this  is  changed.  The  appeal 
now  is  to  all  classes  of  people.  There  must  be  one 
or  more  dealers  in  every  community.  Large  scale 
production  has  greatly  decreased  prices.  The  adver- 
tising is  well-nigh  universal. 

Many  errors  are  made  in  estimating  the  classes 
who  form  the  best  market.  Many  sales  are  lost  to 
manufacturers  who  complacently  accept  a  narrow 
market  without  really  digging  into  the  problem  of 
possible  consumption. 

Occupations  of  possible  buyers  have  an  obvious  in- 
fluence on  selling  methods.  Merchants,  hod-carriers, 
and  railroad  presidents  buy  goods  in  different  ways 
and  often  for  different  reasons.  Expensive  jewelry 
can  be  profitably  sold  to  the  exclusive  jewelry  trade 
by  high-grade  salesmen  calling  on  the  dealers.  Cheap 
jewelry  sold  in  variety  stores  must  be  marketed  in 
a  diflFerent  way. 


STUDY  OF  THE  MARKET 


151 


5.  Finding  the  undeveloped  market. — A  manu- 
facturer who  carefully  studies  the  people  composing 
his  market  does  two  things :  he  finds  out  the  kind  of 
people  to  whom  his  type  of  product  is  normally  sold 
and  he  also  is  likely  to  uncover  a  hitherto  unfound  or 
undeveloped  market.  Yeast  makers  formerly  sold 
their  product  to  bakers  and  to  housewives.  The  dis- 
covery that  it  could  also  be  sold  to  men  and  women 
generally  to  be  eaten  as  an  aid  to  health  has  had  a 
markedly  beneficial  effect  on  the  industry. 

6.  City  and  country  markets.— Where  do  the  pos- 
sible buyers  live  ?    What  is  the  physical  size  and  loca- 
tion of  the  markets?     Environment  is  the  first  con- 
sideration.   Do  buyers  and  possible  buyers  live  in 
cities,  in  small  towns,  or  on  the  farm?     For  some 
commodities,  the  answer  is  obvious.     The  market  for 
windmills  is  limited  by  the  nature  of  the  product. 
For  most  products  inquiry  will  prove  that  environ- 
ment has  little  influence  except  on  the  relative  recep- 
tivity oi  the  different  markets  and  on  the  comparative 
difficulty  of  reaching  them.     Not  so  many  years  ago 
many   manufacturers   neglected   the    farm   market. 
The  rising  standards  of  farm  living  are  today  provid- 
ing an  attractive  market  on  the  farm  for  many  prod- 
ucts heretofore  sold  chiefly  to  the  city  trade.     A 
manufacturer  who  will  not  blindly  limit  his  opportuni- 
ties must  ignore  traditional  market  limitations  and 
must  seek  his  opportunity  wherever  men  and  women 
live  who  have  normal  human  needs  and  the  money  to 
satisfy  them. 


162       MARKETING  AND  MERCHANDISING 

7.  Size  of  the  market— Is  the  market  interna- 
tional, national,  sectional,  or  local?     The  factors  that 
chiefly  limit  the  physical  extent  of  the  market  are 
the  nature  of  the  product  and  characteristics  of  the 
people  who  compose  it,  transportation,  climate,  and 
relation  to  other  products  and  other  markets.     The 
market  for  straw  sombreros  is  largely  confined  to  ter- 
ritories inhabited  by  Mexicans.    Transportation  costs 
limit  the  market  for  a  brick  manufacturer  to  a  rela- 
tively narrow  radius  from  his  plant.     Climate  limits 
the  size  of  almost  every  market ;  cotton  gin  machinery 
can  be  sold  only  in  districts  where  cotton  can  be 
grown ;  woolen  caps  are  not  a  lively  commodity  in 
Brazil;  heavy  rubber  overshoes  are  not  greatly  in 
demand  in  Florida.     Belting  for  thrershing  machinery 
can  be  sold  only  in  localities  where  threshing  machines 
are  used. 

8.  Limitation  of  the  market. — Every  manufac- 
turer does  not  cultivate  all  of  his  possible  market. 
Sometimes  the  cultivation  of  only  a  part  of  it  is  the 
result  of  ignorance  of  its  true  extent.  More  often 
development  of  only  a  part  of  a  possible  market  is  the 
result  of  conscious  sales  policy  based  on  competitive 
considerations,  limited  manufacturing  and  marketing 
resources,  or  on  a  desire  to  try  out  selling  methods 
in  a  limited  territory  before  making  a  heavy  invest- 
ment in  more  far-reaching  operations.  In  the  case 
of  a  new  product,  prudence  frequently  dictates  a 
modest  start  in  a  single  community,  with  carefully  co- 
ordinated and  intensive  sales  and  advertising  work, 


STUDY  OF  THE  MARKET 


153 


y 


the  campaign  being  extended  to  other  communities 
only  as  it  is  possible  to  bring  to  bear  on  a  wider  area 
a  degree  of  selhng  force  that  will  largely  preclude 
the  possibility  of  failure  in  any  community. 

9.  Opportunities  abroad. — Few  manufacturers  fail 
to  realize  the  physical  extent  of  their  domestic  mar- 
ket. Few  of  them  are  aware  of  the  extent  of  their 
possible  foreign  market.  Until  the  Great  War,  the 
exporting  manufacturer  was  the  exception.  This 
was  partly  because  of  ignorance  of  foreign  demand 
and  of  exporting  methods  and  partly  because  the 
complete  absorption  of  the  product  at  home  made  un- 
necessary a  search  for  a  wider  field  abroad.  We  have 
been  forced  to  abandon  our  insular  viewpoint,  and  the 
great  increase  in  productive  capacity  of  our  manu- 
facturing plants  is  likely  to  force  manufacturers  to 
look  abroad  to  a  degree  that  they  never  have  before. 
In  the  near  future  America  will  probably  be  among 
the  leaders  in  the  export  of  manufactured  goods. 
The  manufacturer  who  does  not  study  the  foreign 
field  for  his  product  is  permitting  an  arbitrary  geo- 
graphical line  to  limit  his  opportunity  for  growth 
and  profits. 

10.  Seeking  uneooploited  fields. — That  manufac- 
turer is  fortunate  who  can  find  a  market  that  his 
competitors  have  overlooked.  The  immediate  vicinity 
of  the  factory  is  usually  a  fertile  selling  field.  An 
isolated  community  that  is  difficult  of  access  is  fre- 
quently neglected  by  salesmen,  and  reacts  readily  to 
a  little  intensive  effort.     A  section  of  the  country 


I 


[    ! 
(1,1 


154       MARKETING  AND  MERCHANDISING 

where  one  or  more  competitors  have  long  had  a  firm 
hold  on  popular  demand  may  not  repay  a  manufac- 
turer whose  selling  efforts  must  bring  relatively  quick 
returns;  he  would  be  better  off  if  he  sought  a  field 
where  competition  is  not  so  intrenched.  The  purpose 
of  studying  the  physical  extent  of  the  possible  mar- 
ket and  the  conditions  that  obtain  in  each  section  of 
it  is,  first,  to  enable  a  manufacturer  to  know  his  op- 
portunities, and,  second,  to  enable  him  to  know  his 
limitations.  Both  kinds  of  knowledge  are  equally 
valuable  if  money  is  to  be  laid  out  in  such  a  way  as 
to  bring  the  greatest  net  return. 

11.  Buying  seasons. — 1«  the  product  a  year-around 
seller  or  can  it  be  sold  only  in  certain  seasons?  One 
of  the  most  difficult  markets  td  cultivate  is  the  seas- 
onal market.  Compare  the  opportunities  and  the  sell- 
ing problems  of  the  manufacturer  of  lead  pencils 
and  of  the  manufacturer  of  straw  hats.  There  is  no 
seasonal  demand  for  lead  pencils,  except  perhaps,  a 
heightened  demand  at  the  opening  of  the  school 
year.  The  trade  and  the  consumer  are  equally  re- 
sponsive to  selling  efforts  at  all  times  thruout  the 
year.  Goods  can  be  moved  in  a  relatively  steady 
stream  from  the  factory  thru  the  channels  of  trade 
to  the  points  of  final  consumption. 

The  manufacturer  of  straw  hats  has  but  one 
season  and  a  very  short  season.  He  can  produce 
economically  only  if  he  k^eps  his  factory  going  at 
capacity  the  year  around.  To  do  this,  he  must 
estimate  seasonal  demand  twelve  months  or  more  in 


STUDY  OF  THE  MARKET 


155 


advance  and  then  attempt  to  schedule  production 
thruout  the  year.  He  must  induce  jobbers  and  re- 
tailers to  place  advance  orders  many  months  before 
the  consuming  season  and  then,  if  these  advance  orders 
do  not  cover  what  he  believes  will  be  maximum  re- 
quirements, he  must  manufacture  for  stock  at  his 
own  risk,  or  he  runs  the  chance  of  losing  business 
thru  not  having  stock  to  deliver  when  the  consuming 
season  is  under  way.  He  must  arrange  to  have  his 
customers  accept  a  considerable  part  of  the  goods 
ordered  by  them,  long  before  the  consumer  wants 
them,  so  that  he  can  get  money  with  which  to  carry 
on  his  operations  and  so  that  the  goods  will  surely 
be  on  hand  when  the  season  opens.  He  must  guess 
about  the  popularity  of  new  styles  and  risk  large 
loss  on  them  without  having  the  opportunity  to  try 
them  out  in  a  tentative  way.  A  seasonal  market  is 
always  a  difficult  market,  which  presents  many 
serious  and  complicated  problems. 

12.  Weather  a^  a  factor. — Some  seasonal  markets 
are  made  more  uncertain  by  the  vagaries  of  the 
weather.  Overcoats  sell  chiefly  in  fall  and  winter, 
and  then  in  large  volume  only  if  there  is  a  normal 
amount  of  cold  weather.  The  seasonal  nature  of  the 
market  may  be  exclusively  a  matter  of  weather  as 
seen  in  the  sale  of  umbrellas.  When  weather  must 
enter  into  a  manufacturer's  considerations,  he  has  an 
uncertain  factor  to  deal  with  that  makes  it  necessary 
for  him  to  schedule  his  operations  with  the  utmost 
caution. 


i-tii 


I 


156      MARKETING  AND  MERCHANDISING 

13.  Overcoming  a  seasonal  market. — There  are 
two  movements  designed  to  reduce  the  uncertainties 
of  seasonal  sales.  One  is  the  growing  custom  of  con- 
tinuing consumer  advertising  of  seasonal  goods  thru- 
out  the  year  in  order  to  fix  more  firmly  the  adver- 
tiser's brand  in  the  minds  of  the  buying  pubUc.  The 
manufacturer  who  can  afford  to  do  this  has  added 
assurance  that  his  goods  will  sell  if  the  season  develops 
any  sale  at  all  for  products  of  the  kind  that  he  makes. 
Another  development  is  the  attempt  to  put  goods 
that  were  formerly  seasonal  sellers  into  the  all-year- 
around  class.  This  has  been  done  with  scouring 
soaps,  automobiles,  paints  and  many  other  products. 
The  reward  is  great  for  any  manufacturer  who  takes 
his  product  out  of  the  class  of  seasonal  sellers. 

14.  When  do  buyers  enter  the  market? — Sales  can 
be  increased  by  a  careful  investigation  of  the  occasions 
that  induce  buyers  to  enter  the  market.  Records  of 
weddings  and  births  provide  an  opportunity  for  pro- 
ducers and  distributors  of  many  kinds  of  articles. 
Office  equipment  and  home  furniture  can  be  sold 
to  those  who  have  suffered  loss  thru  fire.  The  record 
of  building  permits  is  a  valuable  index  of  possible 
buyers  for  dealers  in  many  kinds  of  material.  There 
are  few  businesses  that  can  not  increase  sales  by  intel- 
ligent use  of  clipping  bureaus  and  other  sources  of 
information  regarding  possible  buyers. 

15.  Business  conditions  as  business  guides. — Every 
manufacturer  and  dealer  should  be  a  close  student  of 
business  conditions.     The  sale  of  practically  all  com- 


STUDY  OF  THE  MARKET 


157 


modities  is  influenced  by  conditions  of  general  busi- 
ness prosperity  or  depression.  The  theory  of  busi- 
ness cycles  is  generally  accepted.  They  are  based 
on  an  actual  wave-like  movement  of  trade  and  their 
underlying  reasons  are  becoming  better  understood. 
A  study  of  these  cycles  and  the  development  of  busi- 
ness policies  founded  on  them  are  characteristics  of 
the  new  trend  toward  more  careful  analysis  of  all 
factors  that  might  influence  production  and  sales. 
Apart  from  the  general  movement  of  trade,  there 
are  many  local  conditions  of  prosperity  or  depression 
that  should  be  carefully  watched.  The  appearance 
of  the  boll  weevil  in  the  South  may  not  seriously 
affect  business  as  a  whole  but  it  will  very  seriously 
affect  the  market  for  all  kinds  of  goods  in  the  cotton- 
growing  States.  Before  the  days  of  quick  dissemi- 
nation of  news  and  complete  reporting  of  every  pos- 
sible kind  of  business  fact  and  tendency,  there  was 
an  excuse  for  failure  to  keep  in  touch  with  business 
conditions.  There  is  no  excuse  today.  There  are 
countless  opportunities  to  keep  in  touch  with  the  trend 
of  business.  No  manufacturer  or  dealer  can  afford 
to  ignore  them. 

16.  How  do  consumers  buy? — Many  things  are  in- 
volved in  a  study  of  how  consumers  buy.  Allusion 
has  already  been  made  to  brand  consciousness  and  a 
number  of  interesting  questions  arise  in  this  connec- 
tion. Do  consumers  buy  a  brand  name?  If  so,  how 
strong  is  their  attachment  to  established  brands?  It 
has  been  said  that  if  an  article  contributes  to  the  per- 


il  »i 

i  \ 


jAjg^^ 


158       MARKETING  AND  MERCHANDISING 

sonal  comfort,  health,  or  appearance  of  the  person  for 
whom  it  is  bought,  or  to  the  appearance  of  some  of 
his  possessions,  his  attachment  for  it  is  much  stronger 
than  for  some  other  possession  bought  on  the  basis  of 
utility,  economy,  or  efficiency.  It  is  hard  to  switch 
a  man  from  a  make  and  shape  of  collar  that  satisfies 
him.  It  is  much  easier  to  switch  him  to  a  new  brand 
of  writing  ink.  Considerations  such  as  this  aid  the 
manufacturer  in  estimating  the  amount  of  business  he 
can  hope  to  get  in  a  competitive  field  and  in  determin- 
ing the  necessary  strength  and  direction  of  his  selling 

efforts. 

17.  Customary  sales  channels. — Are  consumers 
accustomed  to  buy  from  manufacturers  or  from 
dealers?  Are  they  accustomed  to  seek  their  own 
sources  of  supply,  or  is  personal  solicitation  of  their 
trade  the  rule?  Adding  machines  and  life  insurance 
are  seldom  bought  except  as  a  result  of  personal  solic- 
itation. On  the  other  hand,  a  man  peddling  cigars 
from  office  to  office  may  be  looked  upon  with  suspicion 
because  smokers  usually  make  their  purchases  at 
stores  or  by  mail.  It  is  by  no  means  necessary  always 
to  follow  traditional  sales  methods,  and  frequently  a 
manufacturer  or  dealer  finds  his  opportunity  by 
doing  the  unusual.  The  usual,  however,  should  be 
carefully  studied,  and  the  possibility  and  cost  of 
doing  the  unusual  should  be  thoroly  investigated  in 

advance. 

18.  Buying  habits. — ^Do  the  buyers  in  the  market 
expect  credit?    Will  sales  and  profits  be  decreased  if 


STUDY  OF  THE  MARKET 


159 


li 


i 


credit  is  not  granted  ?  Do  they  buy  in  large  or  small 
quantities  at  a  time  ?  Can  they  be  induced  to  increase 
their  unit  purchases?  Buying  habits  may  be  changed 
but  in  many  cases  it  is  advisable  to  harmonize  selling 
efforts  with  existing  preferences  and  habits  of  the 
market. 

19.  Consumption  possibilities. — What  are  the  con- 
suming possibilities  of  the  market?  What  are  the 
total  sales  of  all  competing  products?  What  are  the 
possibilities  of  additional  sales?  Total  consumption 
and  per  capita  consumption  should  be  ascertained  or 
estimated  for  the  market  as  a  whole  as  well  as  for 
sections,  states,  and  individual  communities.  A 
study  of  this  sort  enables  a  seller  to  know  the  pos- 
sibilities in  the  business,  to  set  quotas  for  himself  and 
for  his  salesmen,  to  direct  sales  efforts  towards  ter- 
ritories where  the  most  business  is  to  be  found  and 
to  measure  his  success  in  any  community  against  the 
possibilities  in  that  paijticular  market.  Consumption 
possibilities  are  among  the  things  that  should  serve  as 
a  basis  for  production  schedules  and  for  determining 
the  amount  to  be  invested  in  selling  activities. 

20.*  How  stable  is  the  market? — Is  the  market 
growing  or  shrinking?  If  the  annual  growth  is  large, 
the  manufacturer  entering  the  field  can  expect  to  get 
a  share  of  the  business  with  comparative  ease,  because 
rapid  increase  ordinarily  means  much  unsatisfied 
demand.  If  the  total  business  is  stationary  or  de- 
creasing or  if  it  shows  only  a  small  increase,  the 
cause    should    be    ascertained.     Possibly    changing 


oi^auyhiiMUli 


160       MARKETING  AND  MERCHANDISING 

social  conditions  are  narrowing  the  market.  Perhaps 
a  new  product  is  superseding  an  old.  Candles  and 
brooms  illustrate  these  conditions.  A  market  of  this 
sort  is  not  promising.  One  who  enters  it,  or,  being  in 
it,  wishes  to  increase  his  own  business,  must  fight  a 
purely  competitive  battle;  his  gain  will  be  his  com- 
petitors' loss.  If  his  competitors  match  his  own 
activities,  the  result  will  be  increased  sales  cost  for 
all  without  corresponding  increase  in  sales.  Fortu- 
nately this  type  of  market  is  not  typical.  Usually 
when  total  consumption  is  not  increasing,  it  is  be- 
cause manufacturers  and  dealers  are  not  awake  to 
their  opportunities.  If  this  is  the  case,  an  enter- 
prising individual  has  the  chance  to  develop  and  satisfy 
increased  demand.  This  is  the  most  profitable  form 
of  competition.  A  market  that  offers  an  opportunity 
for  constructive  sales  activities  is  always  more  attrac- 
tive and  more  profitable  than  one  that  admits  of 
merely  competitive  marketing  methods. 

21.  Influence  of  other  markets. — The  sales  of  some 
products  depend  on  the  sale  of  others.  For  example, 
tire  sales  can  increase  only  with  the  increased  use  and 
sale  of  automobiles.  In  such  instances,  study  of  the 
market  should  include  a  study  of  the  market  for  the 
product  that  governs  the  sale  of  accessories.  The  re- 
placement problem,  where  it  exists,  must  receive  con- 
sideration. If  but  one  sale  is  usually  made  to  a 
consumer,  as  in  the  case  of  an  oflice  safe,  the  problem 
diflFers  from  the  case  of  a  commodity  that  sells  over 


STUDY  OF  THE  MARKET 


161 


and  over  again.  If  goods  are  not  quickly  destroyed 
by  consumption,  the  second-hand  market  and  its  prob- 
lems must  enter  into  a  manufacturer's  investigation 
of  his  own  opportunities.  The  relative  number  of 
consumers  who  will  purchase  new  goods  and  second- 
hand goods  can  seldom  be  foretold  with  any  degree 
of  accuracy.  Every  possible  factor  bearing  on  the 
problem  should  be  investigated  so  as  to  reduce  as  far 
as  possible  the  uncertainty  of  estimating  the  size  of 

the  market. 

22.  The  problem  of  competition. — ^Data  regarding 
consumption  are  not  sufficient  to  guide  a  seller  in  de- 
termining his  market's  possibilities;  he  must  know 
the  other  important  factor,  competition.  Who  else 
are  getting  the  business  ?  How  much  are  they  getting, 
how  are  they  getting  it,  and  how  much  can  he  expect 
to  get  for  himself?  His  inquiries  should  include  not 
only  all  products  of  one  class  but  also  dissimilar  prod- 
ucts serving  similar  purposes.  Hot-water  heating 
systems  compete  with  hot-air  and  steam  heating  sys- 
tems. Coffee  competes  with  coffee  substitutes. 
Candy  competes  with  chewing  gum.  Carpet  sweep- 
ers compete  with  vacuum  cleaners. 

How  many  competitors  are  there  ?  How  many  in 
the  market  as  a  whole?  How  many  in  each  com- 
munity? What  are  the  resources  of  each?  How 
long  has  each  one  been  in  business?  The  modern 
business  man  does  not  talk  much  about  his  competi- 
tors but  he  knows  who  they  are,  what  they  are  doing 


■A*iif**9!^ 


162       MARKETING  AND  MERCHANDISING 

and  what  they  are  able  to  do  in  the  field  in  which  he 
is  operating.  To  ignore  competitors  is  to  fight  in 
the  dark. 

23.  Relative  strength  of  competitors. — What  is  the 
relative  strength  of  competitors?  Suppose  a  manu- 
facturer finds  there  are  fourteen  competitors  in  the 
territory  that  is  naturally  his.  One  gets  seventy- 
five  per  cent  of  the  business,  one  gets  ten  per  cent, 
and  the  other  twelve  divide  the  remaining  minute 
portion.  If  the  new  manufacturer  needs  ten  per  cent 
of  the  business  in  order  to  keep  his  plant  running, 
he  might  decide  that  it  would  be  cheaper  and  easier 
to  go  after  the  business  of  the  trailers  rather  than  to 
try  to  make  a  dent  in  the  trade  of  the  overshadowing 
leader.  It  is  normally  less  difficult  to  enter  a  market 
in  which  there  are  a  few  dominant  figures  and  many 
less  important  ones  than  one  in  which  a  large  number 
are  striving  evenly  for  the  business.  If  the  leading 
manufacturer  gets  only  fifteen  per  cent  of  the  total 
business  and  if  he  is  closely  followed  by  many  others, 
the  new  manufacturer  who  plans  for  a  large  output 
must  rank  from  the  outset  well  up  among  the  leaders 
if  he  is  to  keep  his  plant  busy.  This  is  not  easy, 
and  the  manufacturer  attempting  it  must  be  well 
backed  by  capital  and  selling  strategy. 

The  difficulty  of  competing  against  a  few  outstand- 
ing leaders  in  an  industry  may  be  measured  by  ascer- 
taining the  causes  that  have  brought  about  their 
leadership.  Is  it  due  to  control  of  materials,  to 
special  processes  of  manufacture,  to  style  control,  to 


STUDY  OF  THE  MARKET 


163 


successful  advertising,  to  patent  rights,  to  consolida- 
tion of  individual  plants  into  single  large  units  or 
simply  to  effective  management? 

What  is  the  present  prosperity  and  good-will  of 
each  competitor?  Has  he  stood  still,  or  does  a 
healthy  growth  indicate  growing  good-will  and  effi- 
cient methods?  How  is  he  thought  of  in  the  trade? 
Will  it  be  easy  to  compete  with  him,\  or  is  he  likely 
to  match  any  trade-drawing  activities  launched  by 
a  competitor? 

24.  Competitors'  selling  methods. — ^What  are  the 
marketing  methods  of  each  competitor?  What  is  the 
policy  of  each  with  respect  to  sales  channels,  advertis- 
ing, credits,  dealer  cooperation,  prices,  profits, 
quality,  guarantees  and  all  the  other  things  that  make 
up  the  details  of  sales  policy?  Competitive  prices 
are  a  matter  requiring  constant  watchfulness.  Com- 
petitors can  not  and  do  not  get  together  to  fix  prices 
but  the  organization  of  any  market  is  such  that  there 
is  a  perfectly  natural  trend  toward  relatively  uniform 
prices  for  relatively  uniform  goods.  The  purpose  of 
studying  competitors'  selling  methods  and  policies  is 
not  to  enable  the  investigator  to  copy  their  procedure ; 
good  business  is  not  imitative.  The  purpose  is  to 
permit  the  investigator  to  take  advantage  of  mistakes 
of  others,  and  to  guide  him  in  following  custom  where 
customary  methods — the  line  of  least  resistance — 
seem  to  be  the  best  for  the  given  conditions. 

25.  Building  a  distinctive  selling  appeal. — A  final 
reason  for  studying  competitors  is  to  enable  a  manu- 


164       MARKETING  AND  MERCHANDISING 


*l 


I 


facturer  or  dealer  to  make  for  himself  as  strong  a 
position  as  possible  in  the  competitive  market.  He 
can  advantageously  give  each  important  competitor 
detailed  consideration,  to  determine  the  reason  for 
that  competitor's  hold  on  his  market.  The  reason 
may  be  found  in  habit,  personal  feeling,  special  ser- 
vice, location,  price,  terms,  quality  advertising,  control 
of  patents,  or  in  any  of  the  many  other  things  that 
influence  trade.  The  investigator  should  then  pick 
his  own  business  to  pieces  in  the  same  way  to  deter- 
mine why  consumers  buy,  or  should  buy,  from  him. 
His  purpose  should  be  to  find  some  one  or  more  facts 
about  his  product  or  his  business  that  can  be  used  to 
make  it  stand  out  from  all  others — some  selling  point 
or  points  that  will  give  his  sales  appeal  identity  and 
distinction.  When  competition  is  strong,  a  sales  ap- 
peal that  is  similar  to  many  others  has  little  chance  to 
build  a  strong  and  successful  business.  To  be  largely 
successful  it  must  embody  a  relatively  new  idea,  it 
must  tie  up  with  some  unexploited  interest  of  the 
consumer,  or  it  must  depend  for  its  success  on  an 
old  idea  redressed,  freshened,  and  presented  to  the 
trade  in  such  a  novel  way  as  to  make  the  product 
stand  out  in  its  field.  An  investigation  of  competi- 
tors' and  of  one's  own  business  intended  to  bring  out 
the  selling  appeal  that  will  be  most  effective  in  com- 
petition should  take  into  consideration  most  of  the 
points  that  have  been  outlined  for  study  of  the  prod- 
uct and  study  of  the  market. 


A 


CHAPTER  XI 


FINDING  THE  SELLING  POINTS 

1.  How  selling  points  are  used. — One  purpose  of 
studying  the  product  and  the  market  is  to  find  the 
most  suitable  sales  channels  and  selling  methods. 
Another  purpose  is  to  find  the  selling  points.  The 
importance  of  the  selling  appeal  has  already  been 
noted.  How  shall  that  appeal  be  chosen?  This  fol- 
lows from  an  analysis  of  the  selling  points  which  must 
now  be  considered. 

A  product  is  bought  because  it  appeals  to  the  im- 
agination, senses,  or  interests  of  the  buyer.  It  is  the 
seller's  task  to  find  out  exactly  what  there  is  about 
his  product  that  will  make  consumers  want  it.  The 
things  that  can  be  said  or  written  about  an  article 
and  that  will  help  the  customer  to  make  up  his  mind 
to  buy  it  are  called  selling  points.  They  are  used 
in  two  ways:  The  salesman  bases  his  whole  selling 
talk  upon  them,  and  the  advertising  copy  must  be 
written  around  them. 

2.  How  selling  points  are  fonmd. — Some  manu- 
facturers never  consciously  scrutinize  their  product  in 
order  to  find  its  selling  points.  They  continue  along 
with  the  old  story  about  reputation,  price,  and  service, 
long  after  these  appeals  are  outworn.     Others  adopt 

167 


168       MARKETING  AND  MERCHANDISING 

new  selling  points  that  are  developed  by  chance.  The 
manufacturer,  who  definitely  sets  out  to  increase  sell- 
ing effectiveness  to  the  maximum,  subjects  his 
product,  his  business  and  his  market  to  continual 
analysis  so  that  no  possible  selling  point  may  be  over- 
looked. Why?  What?  Where?  When?  Who? 
Which?  What  for?  These  questions  are  ever  be- 
fore him  in  his  study  of  his  product  and  its  uses  and 
in  his  contact  with  his  employes  and  his  customers. 
Successful  business  is  the  result  of  successful  ideas 
and  their  appHcation.  In  no  other  phase  of  business 
is  there  greater  opportunity  for  constructive  ideas 
than  in  the  finding  and  formulating  of  arguments 
to  batter  down  the  resistance  of  the  prospective  cus- 
tomer. 

This  chapter  presents  an*  outline  of  things  about 
the  product  and  the  business  which  should  be  studied 
when,  an  attempt  is  madfe  to  list  all  the  possible  sell- 
ing points  of  the  product.  All  the  selling  points 
may  not  be  used  either  by  the  salesmen  or  in  the  ad- 
vertising but  unless  all  the  points  are  sought  out  and 
set  down  there  i1^  no  assurance  that  some  of  the  most 
effective  ones  are  not  overlooked.  The  sources  of 
selling  points  discussed  in  this  chapter  are  not  equally 
available  to  all  products,  nor  do  they  include  every- 
thing that  might  be  considered  in  a  search  for  selling 
arguments.  They  are  merely  guides  to  the  investi- 
gator and  suggestive  of  the  wide  range  of  talking 
points  that  can  be  uncovered  for  most  products. 


FINDING  THE  SELLING  POINTS 


169 


3.  History  as  a  source  of  selling  points. — History 
is  not  much  esteemed  in  a  forward-looking  business 
but  it  is  sometimes  used  effectively  in  selling.  The 
history  of  the  industry  may  contain  suggestions  for 
the  salesmen ;  it  sometimes  arouses  interest,  which  is 
the  first  step  in  creating  desire.  The  story  of  the  dis- 
covery of  vulcanization  of  rubber  has  been  used  both 
by  salesmen  and*  in  the  advertising  of  rubber  products. 
The  history  of  a  particular  manufacturer's  business 
is  at  times  of  value  in  selling.  The  age  of  the  com- 
pany  is  a  legitimate  selling  point  to  the  extent  that 
it  implies  a  long  period  of  upright  dealing  and  long 
experience  in  successfully  satisfying  consumers' 
wants.  Rightly  used,  it  can  be  helpful  in  creating 
confidence— which  is  one  of  the  things  for  which  every 
manufacturer  strives.  The  history  of  a  particular 
product  has  value  as  a  selling  point,  particularly  when 
it  shows  development  from  a  crude  beginning  to  a 
present  high  state  of  efficiency. 

4.  Raw  materials. — Selling  points  can  sometimes 
be  found  in  the  raw  materials  that  are  used.  If  they 
are  freely  published,  they  may  create  confidence  even 
tho  the  specific  ingredients  may  mean  little  to  the 
consumer.  If  they  are  not  published,  they  may  be 
surrounded  with  sufficient  mystery  to  arouse  the 
curiosity  and  interest  of  the  consumer.  If  they  pos- 
sess qualities  that  make  them  particularly  adapted  to 
their  purposes,  that  fact  can  at  times  be  stressed. 
The  manufacturer  who  controls  his  own  sources  of 


170       MARKETING  AND  MERCHANDISING 

raw  materials  can  use  that  fact  to  emphasize  the 
uniformity  and  quality  of  the  things  that  go  into 
his  product. 

5.  Conditions  of  manufacture. — Conditions  of 
manufacture  are  prolific  sources  of  selling  points.  If 
the  processes  of  manufacture  are  little  known  or  if 
they  contain  certain  elements  of  the  dramatic,  they 
can  be  woven  into  an  effective  selling  story.  The 
purpose  is  to  attract  attention  and  to  arouse  interest. 
Care  must  be  exercised,  however,  to  avoid  telling  a 
story  that  is  of  vital  interest  to  the  manufacturer  but 
of  little  interest  to  the  consumer.  If  the  manufac- 
turer has  developed  new  processes  for  his  own  prod- 
uct, they  can  be  used  as  selling  points  provided  they 
form  a  basis  for  an  appeal  to  the  customer's  interests 
by  providing  better  quality,  cheaper  price,  or  greater 
service.  The  buyer's  interests  must  be  considered 
primarily  by  the  seller.  It  is  only  as  selling  points 
tie  up  those  interests  that  they  are  of  any  value,  except 
as  mere  attention-getters  and  introductions  to  the  real 
selling  story. 

Precision  of  operations,  cleanliness  of  the  plant 
and  its  workers,  and  the  expertness,  length  of  service, 
and  character  of  the  employes  are  sometimes  used 
as  selling  points.  Obviously  they  can  not  all  be  used 
for  all  products.  Cleanliness  is  a  strong  appeal  for 
a  food  product  but  it  would  mean  little  in  selling 
a  motor  truck.  A  strong  story  can  be  built  around 
the  frequency  and  accuracy  of  inspection  and  tests. 
A  statement  of  the  number  of  rejects  as  the  result 


FINDING  THE  SELLING  POINTS 


171 


of  careful  inspection  is  a  useful  selling  point,  partic- 
ularly if  the  product  is  technical  and  is  bought  by 
those  with  intimate  knowledge  of  conditions  of  manu- 
facture. 

6.  Volume  of  production.— The  extent  to  which 
volume  of  production  may  well  be  used  as  a  sales 
appeal  is  questionable.  If  a  company  really  holds 
the  dominant  place  in  its  industry,  a  statement  to 
that  effect  at  times  has  beneficial  results.  It  is 
chiefly  useful  when  the  company  invades  a  new  field 
in  which  it  is  little  known.  The  danger  is  that  the 
statement  will  be  considered  a  mere  boast.  Unless 
it  carries  with  it  the  suggestion  of  strength,  character 
and  effective  service  to  customers  it  is  of  little  value. 

7.  Reputation  of  managers. — The  reputation  of  the 
men  who  direct  the  technical  operations  in  the  factory 
has  some  value  in  selling.  If  the  names  of  the  men 
are  known  in  the  industry,  it  is  sometimes  advan- 
tageous to  feature  their  part  in  the  manufacturing 

processes. 

8.  Industrial  relations.— With  the  increasing  em- 
phasis upon  the  conditions  under  which  factory 
workers  are  employed,  there  has  arisen  an  oppor- 
tunity to  use  satisfactory  industrial  relations  as  a 
seUing  point.  A  manufacturer  of  steel  based  a  year's 
selling  and  advertising  campaign  on  the  contentment 
and  loyalty  of  his  employes  and  on  the  methods  used 
to  give  them  fair  treatment  and  attractive  working 
conditions.  Some  of  this  sort  of  thing  is  useful  but 
it  must  be  done  with  caution.    Unless  overdone,  it 


172       MARKETING  AND  MERCHANDISING 

may  arouse  interest  and  create  confidence  but,  even 
in  the  best  managed  plant,  there  is  always  the  danger 
of  industrial  disputes  which  will  discredit  the  sales 
talk  and  the  advertising.     If  a  manufacturer  can 
fortunately  combine  low  prices  for  his  product  and 
unusually  high  wages  for  his  workers,  this  condition 
may   be  capitalized   to  advantage,  particularly   in 
sales  to  the  laboring  classes.     Unusual  provisions  for 
safe-guarding  the  health  of  factory  employes  and  for 
increasing  their  comfort  and  happiness  help  at  times 
to  create  favorable  public  opinion  for  the  manufac- 
turer and  his  products.     The  manufacturer  who  pro- 
vides  these   facilities  primarily   for  their   puWicity 
value,  however,  is  likely  to  defeat  his  own  ends. 

9.  Manufacturing  i?oZ2aV*.— Manufacturing  poli- 
cies can  be  formulated  as  sales  arguments.     When 
volume  of  production  is  large,  its  effect  on  reducing 
the  unit  cost  of  manufacturing  and  on  maintaining 
minimum  sales  prices  is  frequently  and  effectively 
m-ged.     On  the  other  hand,  a  policy  that  dictates 
the  production  of  relatively  few  units,  each  one  the 
product  of  every  possible  refinement  of  hand-work, 
individual  care,  and  perfect  finish,  is  equally  effective 
when  price  is  a  minor  consideration  in  the  sale.     In- 
genious machine  operations  can  be  urged  as  a  reason 
for  standard  product,  uniform  parts  and  low  price. 
Hand  operations  can  be  urged  as  an  assurance  of 
intelligent  workers  and  interested  attention  to  all 
details  of  production. 

10.  Financial    ^oZ/aV*.— Financial    policies    are 


FINDING  THE  SELLING  POINTS 


17« 


t> 


sometimes  used  as  selling  points.  A  railroad  made 
much  of  the  fact  that  its  stock  was  largely  held  by 
many  small  holders  dependent  upon  its  dividends  for 
their  support.  On  this  it  built  a  story  of  its  feeling 
of  responsibility  and  the  necessity  of  giving  a  type  of 
service  that  would  insure  the  stability  and  prosperity 
of  the  company.  An  automobile  manufacturer  an- 
nounced that  he  would  expect  and  would  take  only 
a  specified  percentage  as  net  profit  on  his  sales;  his 
purpose  was  to  create  the  impression  that  in  his  car 
an  unusually  high  percentage  of  the  selling  price  went 
into  the  purchase  of  good  materials  and  good  work- 
manship. 

11.  Selling  policies.— In  the  field  of  selling  policies 
there  are  many  things  that  can  serve  as  the  basis  of  a 
selling  talk.  Convenience  in  buying  is  important  to 
the  consumer.  If  a  product  is  sold  by  house-to- 
house  canvassers,  the  manufacturer  can  legitimately 
argue  that  he  is  contributing  to  the  convenience  of 
liis  customers.  One  of  the  stock  appeals  of  those 
who  make  and  sell  ready-to-wear  clothes  is  that  the 
buyer  of  their  goods  avoids  the  inconvenience  of  the 
custom  tailor's  measurings  and  try-ons.  When 
goods  are  sold  by  catalog,  the  customer  is  led  to  be- 
lieve that  he  is  getting  the  goods  at  more  convenience 
to  himself  and  at  lower  prices  than  if  he  bought  them 

in  some  other  way. 

The  plan  of  payment  may  be  made  a  strong  sell- 
ing point.  Credit  on  purchases  has  an  appeal  to 
many  people.     Large  businesses  are  built  up  with 


174       MARKETING  AND  MERCHANDISING 

universal  credit  to  consumers  as  their  chief  appeal 
for  trade.  Payment  by  instalments  is  a  common 
variant  of  the  credit  selling  point.  Longer  terms  of 
credit  have  sold  many  bills  of  goods  to  dealers  when 
other  arguments  have  bailed. 

Free  delivery  is  a  bait  that  sells  much  merchandise. 
A  specialty  manufacturer  in  an  inland  community 
developed  a  nation-wide  business  that  was  at  least 
partly   due   to   his   slogan:     "Jones,   he   pays   the 
freight."     One  of  the  most  effective  selling  points 
from  the  field  of  selling  policies  is  the  guarantee  or 
money-back  offer.     It  is  so  generally  used  now  that 
its  use  gives  little  competitive  advantage,  but  in  ear- 
lier years  its  novelty  and  obvious  appeal  were  respon- 
sible for  many  great  business  successes.     If  a  product 
consists  of  parts  that  may  need  renewing,  a  selling 
policy  that  provides  for  economical  and  convenient 
renewal  of  parts  is  a  strong  argument  in  pushing 

SSLlGSm 

12.  What  does  product  do  for  the  consumer!— 
It  has  been  said  that  the  consumer's  interests  must 
be  paramount  in  selecting  selling  points.  Selling 
talk  that  appeals  to  hun  is  good;  selling  talk  that 
does  not  appeal  to  him  is  worthless.  The  manufac- 
turer'must  always  ask:  What  does  the  product  do 
for  the  consumer?  In  the  preceding  paragraphs  the 
emphasis  has  been  upon  sources  of  selling  points. 
In  the  following  paragraphs  the  emphasis  is  upon 
the  consumer's  point  of  view.  They  contain  sug- 
gestions of  the  reasons  why  standard  avenues  of  ap- 


iirn ■■■iiiii"iTiiTt'"i Ill  I'll '"[■"■■'■■' 


FINDING  THE  SELLING  POINTS 


175 


proach  to  the  consumer's  interests  have  been  used  .ef- 
fectively to  obtain  favorable  reactions  to  selling  ap- 
peals. 

13.  Appeal  to  the  senses.— Out  senses  are  our 
only  means  of  contact  with  the  outer  world.     A  di- 
rect appeal  to  one  of  the  buyer's  senses— sight,  taste, 
hearing,  touch,  and  smell— is  the  quickest  way  to  get 
a  favorable  reaction.     The  sense  of  sight  is  stimu- 
lated by  selling  talk  based  on  the  beauty  of  the  prod- 
uct—beauty of  form,  color,  or  design.     The  sales- 
man who  shows  his  samples  against  attractive  back- 
grounds and  who  surrounds  them  with  an  atmosphere 
of  value  and  worth  utilizes  this  appeal.     So,  too,  does 
the   advertiser   who   emphasizes  the   beauty  of  his 
goods  by  the  beauty  of  his  advertisements.     If  goods 
themselves  appeal  to  the  eye,  the  seller  has  a  great 
advantage.     If  they  do  not,  he  should  handle  them 
and  talk  about  them  in  such  way  as  to  simulate  the 
attractiveness  that  they  may  inherently  lack.     If  the 
goods  do  not  appeal  to  the  eye,  an  attractive  con- 
tainer may  overcome  this  defect. 

The  sense  of  taste  is  appealed  to  by  most  manufac- 
turers of  tobacco  and  food  products.  For  the  mere 
statement  that  the  product  tastes  good,  the  skilled 
salesman  and  advertiser  substitutes  words  that  almost 
literally  make  the  buyer  taste  the  flavor  of  the  prod- 
uct. The  purpose  of  free  samples  is  chiefly,  to  get 
the  maximum  effect  from  the  appeal  to  taste.  Man- 
ufacturers of  perfumery  appeal  to  the  sense  of  smell; 
musical  instruments  are  largely  bought  because  of 


I 


176       MARKETING  AND  MERCHANDISING 

their  appeal  to  the  sense  of  hearing;  fabrics  are  some- 
times sold  because  they  delight  the  touch  as  well 
as  the  eye.  No  manufacturer  who  can  find  in  his 
product  a  real  appeal  to  one  or  more  of  the  five  senses 
can  afford  to  overlook  that  appeal  in  his  selling  argu- 
ment. 

14.  Personal  and  family  pride.— The  appeal  to 
personal  and  family  pride  is  an  effective  one.  The 
style  appeal  is  a  direct  appeal  to  pride.  In  many 
classes  of  commodities  it  is  the  strongest  appeal  that 
can  be  used.  Any  product  that  enhances  the  per- 
sonal  appearance  has  a  relatively  easy  road  to  popu- 
lar favor.  The  soap  manufacturer  who  uses  the 
slogan,  "The  skin  you  love  to  touch,"  found  the 
logical  answer  to  his  question :  "What  will  my  prod- 
uct do  for  the  consumer?"  The  statement  that  a 
product  or  its  materials  are  imported  is  largely  an 
appeal  to  pride.  So  too  is  the  appeal  of  exclusive 
patterns  and  styles.  In  this  class  also  is  the  appeal 
to  the  buyer  on  the  score  that  this  or  that  famous  man 
or  woman  uses  the  product. 

An  appeal  to  family  pride  is  equally  as  strong  as 
an  appeal  to  personal  pride.  House  furnishings  are 
bought  partly  because  of  the  desire  of  the  buyer  to 
give  his  family  an  environment  as  good  as  that  of 
their  neighbbrs.  No  one  can  estimate  the  number  of 
expensive  automobiles  that  have  been  bought  on  this 
basis.  Some  private  schools  base  their  selling  appeal 
on  the  social  advantages  to  be  derived  from  attend- 
ance.    No  other  appeal  to  the  buyer  is  so  strong  as 


FINDING  THE  SELLING  POINTS 


17T 


that  which  encourages  his  natural  inclination  to  pro- 
vide for  his  family  the  best  that  he  can  afford. 

15.  Personal  and  family  welfare. — Under  the  gen- 
eral head  of  appeals  to  personal  or  family  welfare 
there  are  many  possible  points  of  contact  between 
the  product  and  the  consumer.  The  public  pays 
many  millions  of  dollars  for  pleasure  and  amuse- 
ment. In  some  way  almost  any  product  can  be  shown 
to  contribute  to  the  buyer's  pleasure.  A  talking 
machine  is  an  educator  as  well  as  a  purveyor  of  amuse- 
ment ;  probably  one  hundred  are  sold  for  amusement 
where  one  is  sold  as  an  aid  to  musical  education.  The 
manufacturer  who  stresses  attractive  appearance  of 
such  a  utilitarian  product  as  a  kitchen  cabinet  is  ap- 
pealing to  pleasure. 

16.  Education. — The  educational  appeal  is  one  of 
the  strongest  that  can  be  used.  The  desire  for  self- 
education  and  for  edlication  for  one's  children  are 
the  driving  forces  behind  much  that  is  characteristic 
in  American  civilization.  Books,  pianos,  magazines 
— anything  that  has  an  educational  appeal  can  be 
sold  largely  on  this  basis. 

17.  Convenience. — Convenience  to  the  user  is  often 
the  chief  selling  point  of  an  article.  "It  floats"  prob- 
ably sells  as  much  soap  as  does  the  slogan  "99  and 
44/100  pure."  The  dental  cream  that  "Comes  out 
like  a  ribbon ;  lies  flat  on  the  brush"  appeals  to  con-  ' 
venience — a  strong  appeal  in  a  competitive  market 
where  many  dental  preparations  all  have  the  quali- 
ties for  which  the  consumer  primarily  buys  a  denti- 


4 


178       MARKETING  AND  MERCHANDISING 

frice.  Food  products  that  are  readily  prepared  for 
the  table  combine  an  appeal  to  convenience  with  an 
appeal  to  taste.  Convenience  to  consumers  was  in 
the  mind  of  the  manufacturer  of  cylinder  oil  who  de- 
vised a  chart  to  guide  buyers  in  getting  the  proper 
grade  of  oil  for  their  cars. 

18.  Appeals  to  comfort. — The  public  is  self-indul- 
gent ;  it  likes  to  be  comfortable.     An  appeal  to  com- 
fort is  always  effective.     Luxuriously  riding  auto- 
mobiles, easy- fitting  clothes,  devices  to  regulate  the 
furnace  and  obviate  a  trip  to  the  basement,  furni- 
ture, lighting  systems — ^they  all  have  an  appeal  to 
comfort.     Anything  that  is  labor-saving  or  time-sav- 
ing contributes  to  our  love  of  comfort.     People  do 
not  wear  hosiery  because  it  will  not  wear  out  but 
they  buy  it  in  large  quantities  if  the  manufacturer 
creates  the  impression  that  darning  is  a  remote  con- 
tingency.    This  is  supposed  to  be  an  age  of  effi- 
ciency.     Anything  that  cuts  steps,  saves  time,  helps  . 
to  avoid  lost  motion  seems  to  be  inherently  interest- 
ing.    From  the  woman  in  the  home,  whose  busy  day 
invites  the  ingenuity  of  manufacturers  of  labor-sav- 
ing devices,  to  the  business  man  in  his  office,  there  are 
many  classes  of  consumers  who  can  best  be  reached 
by  the  labor-saving  appeal. 

19.  Other  welfare  appeals. — Thrift,  as  the  gate- 
•  way  to  comfortable  independence,  is  one  of  the  im- 
portant appeals  under  the  head  of  personal  or  family 
welfare.     So,  too,  is  healthfulness.     There  seems  to 
be  an  almost  limitless  market  for  patent  medicines, 


FINDING  THE  SELLING  POINTS 


179 


devices,  preparations,  courses,  and  books  for  which  the 
producers  claim  the  ability  to  restore  good  health, 
ward  off  bad  health,  increase  the  weight,  decrease  the 
weight,  develop  the  muscles,  and  in  general  give  that 
degree  of  health  and  vitality  which  is  thought  to  be 
necessary  for  personal  efficiency  and  success  in  busi- 
ness. Another  appeal  to  general  welfare  is  the  ap- 
peal of  simplicity.  The  argument  that  a  product  is 
non-technical,  that  it  can  be  used  or  operated  readily, 
is  effective  when  sales  might  be  blocked  by  a  fear  that 
the  contrary  was  true. 

20.  Ambition. — If  a  manufacturer  can  appeal  to 
the  consumer's  ambition,  he  has  a  powerful  weapon. 
One  of  the  strongest  human  motives  is  the  desire  to 
stand  out  from  the  mass,  to  earn  more  money,  to  ac- 
quire accomplishments,  to  increase  one's  social  stand- 
ing. The  marketing  of  almost  countless  products 
legitimately  utilizes  this  characteristic  of  the  majority 
of  men  and  women. 

21.  Economy. — Economy  is  always  an  effective  ap- 
peal. If  the  price  is  low,  the  justice  of  the  appeal 
is  obvious.  If  the  price  is  high,  the  consumer  can  be 
told  that  longer  service  and  greater  quality  will  more 
than  justify  the  higher  first  cost.  The  thousand  and 
one  variations  on  the  theme  of  service,  quality  and 
long  wear  are  all  dictated  by  the  realization  that 
selling  is  a  call  upon  the  consumer's  financial  re- 
sources and  that  the  call  will  be  most  successful  when 
the  consumer  can  be  made  to  believe  that  he  is  getting 
the  most  for  his  money. 


180       MARKETING  AND  MERCHANDISING 


22.  The  social  appeal. — Occasionally  the  social 
appeal  may  be  used  in  selling — the  humanitarian  in- 
stincts of  the  race,  the  average  individual's  inherent 
sympathy  with  others,  his  natural  trend  toward  co- 
operation, his  feeling  of  fellowship  with  his  neigh- 
bors and  with  all  mankind.  Usually  this  appeal  is 
employed,  not  in  the  marketing  of  tangible  prod- 
ucts, but  in  "seUing"  the  idea  of  contributing  to 
funds  of  various  sorts  and  in  soliciting  subscriptions 
for  memorials,  public  buildings,  educational  institu- 
tions and  other  similar  purposes. 

23.  What  does  the  product  do  for  dealers?— In  seU- 
ing to  dealers,  the  selling  points  that  appeal  most  to 
consumers  are  not  always  effective.  They  may  in- 
terest the  dealer  and  may  influence  him  to  some  de- 
gree but  he  is  chiefly  concerned  with  an  answer  to  the 
question:  "What  does  the  product  do  for  dealers?" 
The  dealer  is  selfishly  and  properly  interested  chiefly 
in  one  thing— profits.  He  will  buy  what  he  can  sell 
honestly  and  at  a  profit ;  he  will  not  buy  anything  that 
does  not  contribute  directly  or  indirectly  to  his  profit. 
The  selling  points  that  most  appeal  to  him  are  the 
following:  Low  prices  and  favorable  terms;  more 
sales  to  more  customers;  increased  turnover;  satis- 
fied customers  and  increased  prestige  for  his  store. 
In  other  words,  in  the  case  of  the  dealer  as  in  the  case 
of  the  consumer,  the  most  effective  appeal  is  the  ap- 
peal to  the  buyer's  own  interests. 

The  opportunity  to  realize  a  good  margin  between 
buying  price  and  selling  price  always  interests   a 


FINDING  THE  SELLING  POINTS 


181 


dealer.  Long  credit  or  liberal  cash  discounts  attract 
him.  If  a  product  is  little  known,  he  is  likely  to  en- 
tertain a  consignment  proposition.  He  hkes  to 
handle  goods  that  mean  more  sales  to  more  customers 
—that  attract  new  trade  to  his  store  by  reason  of  their 
low  price,  their  novelty,  or  the  fact  that  they  are 
largely  and  favorably  known  to  consumers.  Nation- 
ally advertised  goods  appeal  to  him  for  this  reason. 
He  makes  his  profit  largely  by  using  each  dollar  of 
capital  over  and  over  again  and  by  getting  a  net 
profit  on  each  turnover.  Anything  that  promises  to 
sell  rapidly  ought  to  interest  him.  Advertised  goods, 
if  the  advertising  is  effective,  or  unadvertised  goods, 
provided  there  is  real  demand  for  them,  are  in  this 
class.  Finally,  the  dealer  likes  goods  that  help 
him  to  hold  a  clientele  of  satisfied  customers  and  to 
increase  the  prestige  of  his  store  in  his  community. 
For  this  reason  the  appeals  of  reputation,  quality, 
service  and  value  are  as  interesting  to  him  as  they  are 
to  the  consumer. 

24.  Direct  and  indirect  appeals. — Selling  appeals 
to  consumers  or  dealers  may  be  direct  or  indirect. 
The  manufacturer  may  either  tell  the  buyer  what  the 
product  will  do  for  him  or  he  may  rely  on  others  to 
tell  him.  When  a  great  pianist  commends  the  tone 
of  a  piano,  his  statement  has  more  weight  than  the 
manufacturer's  claims  for  his  instrument.  This  form 
of  indirect  appeal  is  exceedingly  strong.  Less  effec- 
tive, but  used  very  widely,  are  the  recommendations 
of  obscure  individuals  who,  in  gratitude  to  the  manu- 


182       MARKETING  AND  MERCHANDISING 


facturer,  tell  him  of  their  satisfaction  with  his  prod- 
uct. Recommendations  of  this  sort  have  proved 
enormously  successful  in  selling  all  kinds  of  products. 

25.  Positive  and  negative  appeals. — The  appeal 
may  be  positive  or  negative;  that  is,  the  manufac- 
turer may  tell  either  what  the  product  will  do  or 
what  it  will  not  do  for  the  buyer.  The  negative 
appeal  is  usually  intended  to  forestall  an  obvious  ob- 
jection to  purchasing.  "Won't  shrink  woolens"  has 
carried  a  soap  preparation  to  success.  "It  will  not 
break"  helps  to  sell  an  all-metal  vacuum  bottle.  "No 
metal  can  touch  you"  appeals  to  men  when  they  buy 
garters.  "Will  not  discharge  accidentally"  is  a 
strong  appeal  for  a  revolver.  "The  varnish  that 
won't  turn  white"  has  built  large  sales  for  its  manu- 
facturer. 

26.  Selecting  the  selling  points. — From  a  long  list 
of  possible  selling  points,  it  is  often  difficult  to  select 
those  that  will  best  sell  a  product.  The  selection 
must  be  done  in  accordance  with  the  best  judgment 
that  can  be  brought  to  bear  on  the  problem,  and 
tentative  selections  should  be  subjected  to  the  test  of 
actual  use.  Field  surveys  may  be  made  in  advance, 
and  extensive  inquiry  made  of  dealers  and  consumers 
as  to  the  selhng  points  that  would  most  influence 
their  purchases.  All  this  is  useful  but  the  test  of  ac- 
tual selling  must  still  be  apphed.  Salesmen  equipped 
with  carefully  formulated  selling  points  for  a  new 
product  will  find  after  they  have  been  a  short  time 
in  the  field  that  a  few  of  their  arguments  are  re- 


FINDING  THE  SELLING  POINTS 


183 


sponsible  for  most  of  their  sales  and  the  other  argu- 
ments have  little  appeal.  Thus  the  standard  selling 
points  develop  as  the  result  of  natural  selection.  If 
the  product  is  advertised,  tentatively  selected  selling 
points  may  be  made  the  subject  of  trial  efforts.  The 
result  will  be  conclusive  only  if  direct  orders  are 
solicited  in  the  advertising  and  if  all  conditions  of 
copy  excellence,  display,  and  space  and  mediums  used 
are  the  same  for  all  the  tests  that  are  conducted. 

27.  Value  of  charts. — Some  selling  points  are  so 
fundamental  that  they  should  be  used  over  and  over 
again,  in  every  selling  talk  and  in  every  advertise- 
ment. Others  of  a  more  supplementary  nature  may 
well  be  varied  from  time  to  time  to  meet  changing 
conditions  in  the  market.  Every  sales  manager,  sales- 
man and  advertising  man  will  find  it  helpful  to  main- 
tain a  chart  of  all  possible  selling  points  for  his  prod- 
uct. If  the  points  in  the  chart  are  classified  in  ac- 
cordance with  their  relative  appeal  to  different 
classes  of  customers,  the  chart  can  be  of  great  assist- 
ance in  freshening  up  a  selling  talk  and  in  prepar- 
ing advertising  copy.  A  chart  of  selling  points  used 
by  the  workers  for  the  Fourth  Liberty  Loan  con- 
tained the  following  headings : 


Thrift  Analysis 

Results   of   buying  bonds       Where  the  billions  go 

Benefit  of  saving 
Saceifice  Shame 

Comparison  of  sacrifice  Condemnation  of  slackers 

Reasons  for  sacrifice  Examples  set  by  others 


f 


184       MARKETING  AND  MERCHANDISING 


FINDING  THE  SELLING  POINTS 


185 


r 


Hi. 


1 


Secukity 

Backing,  percentage, 
safety 
Patriotism 

Love  of  country 

Love  of  flag 
Hope 

For  success  of  loan 

For  success  of  the  war 

Feae 

For  outcome  of  war 
For  success  of  loan 


Peide 

In  country,  vooation,  his- 
tory, and  our  army 
Geatitude 
To    our    men,    our    aUies, 
and  our  God 
Responsibility 

To    our    men,    our    allies, 
our    families,    and    hu- 
manity 
Hate 

Caused       by       atrocities, 
broken  integrity,  etc. 


Competition 
With  neighbors,  and  other 
communities 

It  may  well  be  admitted  that  in  the  case  above  cited 
the  appeals  are  more  largely  emotional  than  wouH  be 
the  case  in  the  sale  of  most  products.  .But  every 
one  who  has  something  to  sell  would  no  doubt  im- 
prove his  selling  process  and  his  advertising  practice 
by  carefully  listing  all  the  possible  selling  points  and 
deciding  the  proper  weight  of  emphasis  to  be  laid 
upon  each. 

SOURCES  OF  SELLING  POINTS 


HiSTOEY 

Of  the  industry 
Of  the  company 
Of  the  product 
Raw  mateeials 
Published 
Secret 
Control  of  sources 


Conditions  of  manufactuee 
Processes 
Precision 
Cleanliness 
The  workers 
Volume  of  production 
Reputation  of  managers 
Industrial  relations 


Manufactueing   policies 
Large  production 
Small  production 
Machine  operations 
Hand-work  processes 
Financial  policies 
Distribution  of  stock 
Limited  profit 
Selling  policies 
y  Convenience    in    purchas- 
ing 
Plan  of  payment 
Free  delivery 
Guarantees 
What  does  peoduct  do  foe 
consumee? 
Appeal  to  senses 
Appeal    to    personal    and 
family  pride 
Style 

Personal  appearance 
Exclusive  kinds  and  pat- 
terns 
Emulation  of  others 


and     time- 


Appeal    to    peesonal    and 
family  welfaee 

Pleasure 

Amusement 

Education 

Convenience 

Comfort 

Labor-saving 
saving 

Thrift 

Healthfulness 

Simplicity 

Appeal  to  ambition 

The  economy  appeal 

The  social  appeal 
What  does  peoduct  do  foe 

DEALEES? 

Low  prices  and  favorable 

terms 
More   sales    to    customers 
Increased  turnover 
Satisfied     customers     and 

increased  prestige 


REVIEW 

What  are  selling  points  and  how  are  they  used? 

How  does  a  manufacturer  find  the  selling  points  of  his 
product  ? 

Discuss  selling  policies  as  applied  to  selling  talks. 

How  are  the  senses  used  to  appeal  to  the  consumer? 

What  are  some  of  the  selling  points  that  may  be  used  effec- 
tively with  dealers? 

Distinguish  between  a  direct  and  indirect  appeal;  a  positive 

and  negative  one. 

How  are  the  most  efi'ective  selling  points  secured? 


/ 


REACHING  THE  MARKET 


187 


CHAPTER  XII 

REACHING  THE  MARKET 

1.  Lack  of  standards  in  selling. — ^AU  the  prelimi- 
nary study  of  trade  relations,  of  the  product  and  of 
the  market  is  the  foundation  on  which  marketing 
policies   and   marketing   procedure   must   be   built. 
When  the  time  comes  to  use  the  information  that  has 
been  collected  in  preparing  for  the  actual  work  of 
selling,  the  great  difficulty  of  successful  selling  be- 
comes apparent.     SeUing  is  not  standardized;  very 
few  of  its  practices  have  been  reduced  to  rules  and 
principles.     Except  in  a  small  minority  of  cases  it 
is  not  possible  to  say  that,  with  certain  facts  about 
trade  relations,  certain  facts  about  the  product,  and 
certain  facts  about  the  market,  any  specified  method 
of  selling  must  be  adopted  in  order  to  insure  certain 
results.     If  the  marketing  of  a  product  could  be  re- 
duced to  set  rules,  every  one  who  could  learn  the 
rules  would  be  sure  of  a  fortune. 

2.  The  part  played  hy  judgment.— Uncertainty  of 
results  in  marketing  is  due  chiefly  to  the  fallibility 
of  human  judgment.  There  may  be  the  most  care- 
ful marshaling  of  all  known  facts  regarding  the 
trade,  the  product  and  the  market.  The  exact  bal- 
ancmg  of  the  various  parts  of  this  information  might 

186 


result  in  exactly  the  right  decision  as  to  selling  pro- 
cedure but  no  one  can  be  certain  that  he  has  given 
just  the  right  weight  in  his  judgment  to  each  of  the 
factors  involved.  The  false  valuation  of  competition, 
of  price  considerations,  of  influence  of  dealers,  of 
classes  of  possible  customers,  or  of  any  one  of  many 
other  things  that  must  be  taken  into  account  in  sell- 
ing may  point  the  seller's  decision  in  a  direction  that 
will  not  lead  to  maximum  sales  at  minimum  cost. 

Uncertainty  of  judgment  is  no  excuse  for  failure 
to  obtain  the  data  on  which  a  judgment  must  be 
based.     The  greater  the  amount  of  pertinent  data 
collected  before  adopting  marketing  policies  and  pro- 
cedure and  the  more  exact  the  data  are,  the  less  likeli- 
hood there  is  of  wrong  decisions.     The  possibility  of 
an  illogical  decision  by  a  jury  does  not  deter  the  trial 
lawyer  from  organizing  his  case  with  the  utmost  care. 
The  possibility  of  making  a  wrong  decision  on  the 
basis  of  collected  data  is  no  justification  for  doing 
without  data  entirely  and  rushing  into  a  marketing 
plan  with  only  whim,  prejudice  and  limited  personal 
experience  as  guides. 

3.  Plans  must  suit  individual  cases. — No  text-book 
can  tell  the  manufacturer  how  to  market  his  product. 
Plans  do  not  come  ready-made;  each  one  must  be 
built  to  fit  peculiar  conditions.  The  purpose  of  this 
chapter  is  to  show  that  all  which  has  gone  before 
must  be  cemented  together  to  form  the  foundation 
for  the  successful  sales  structure,  and  to  outline 
the  steps  that  must  be  taken  in  any  complete  plan 


188       MARKETING  AND  MERCHANDISING 


REACHING  THE  MARKET 


189 


of  marketing.  These  steps  form  two  groups — ^mar- 
keting policies  and  marketing  procedure.  Market- 
ing policies  include  the  selecting  of  suitable  sales 
channels,  fixing  the  prices  and  terms,  deciding  on  the 
use  of  salesmen  or  the  mails  to  influence  buyers, 
choosing  between  sales  in  bulk  or  by  branded  con- 
tainers, selecting  of  trade-marks  and  packages,  solv- 
ing the  problems  of  advertising  exclusive  agencies, 
price  maintenance,  credit,  guarantees  and  service. 
Marketing  procedure  includes  charting  the  cost  of 
marketing;  organizing  the  activities  of  salesmen;  or- 
ganizing the  advertising;  coordinating  production, 
selling,  and  advertising;  getting  distribution;  obtain- 
ing dealer  cooperation  and  providing  for  the  main- 
tenance of  suitable  selling  records. 

4.  Trade  channels. — Following  a  preliminary  study 
of  trade  relations,  of  the  product  and  of  the  market, 
the  first  thing  to  do  is  to  select  the  right  trade  chan- 
nels. The  following  outline  summarizes  the  methods 
of  reaching  the  market,  which  are  discussed  in  the 
early  chapters  in  this  Text : 

A.  Manufacturer  direct  to  consumers 

1.  By  personal  solicitation 

2.  By  mail 

3.  Thru  the  manufacturer's   own   retail   stores,   usually 

conducted  on  the  chain-store  principle 

B.  Manufacturer  direct  to  retailers 

He  may  reach  retailers  either  by  salesman  or  by  mail 
1.  He  may  deal  with  one  or  more  of  the  following  kinds 
of  retailers: 
a.  Country  general  stores 


b.  Specialty  stores 

c.  Department  stores 

d.  Chain  stores  not  owned  by  the  manufacturer 

e.  Mail-order  houses 

f.  Cooperative  buying  organizations 

2.  He  may  sell  generally  to  all  retailers  in  a  selected 

class  - 

3.  He   may   confine   sales   to   one   retailer  or  to   a   few 

retailers  in  a  community 

C.  Manufacturer  direct  to  jobbers 

He  may  reach  jobbers  either  by  salesmen  or  by  mail 
His  goods  may  be  distributed  to  any  desired  class  of 

retailers  by: 

1.  Jobbers    operating    locally,    sectionally,    or    nation- 

ally 

2.  All  jobbers  who  will  cooperate  with  him 

3.  Selected  jobbers  having  exclusive  jobbing  agencies  m 

restricted  territories 

D.  Manufacturer  direct  to  special  representatives 

He  may  reach  them  by  salesmen  or  by  mail 
These  special  representatives  may  sell  to  jobbers,  re- 
tailers or  consumers 
They  are,  chiefly: 

1.  Agents 

2.  Commission  men 

3.  Brokers 

5.  How  many  channels  shall  he  used? — The  rela- 
tive advantages  and  disadvantages  of  employing  the 
various  trade  channels  have  already  been  discussed. 
The  necessity  of  a  definite  choice  is  obvious.  Some 
manufacturers  select  one  of  these  possible  trade  chan- 
nels and  send  their  goods  thru  it  exclusively.  Others 
combine  advantageously  several  channels.  Whether 
a  manufacturer  is  to   sell  thru  one  or  more,   de- 


I 


,    I 

I 


190       MARKETING  AND  MERCHANDISING 

pends  partly  on  custom,  partly  on  the  nature  of 
his  product,  and  partly  on  his  ability  to  see  new 
methods  of  marketing,  to  overcome  tradition,  and  to 
adapt  to  his  own  use  all  marketing  plans  that  appeal 
to  him  as  offering  new  opportunities  for  the  sale  of 
his  goods. 

6.  Influence  of  custom. — Trade  channels  are  no 
longer  standardized.  One  manufacturer  of  alumi- 
num  kitchen  utensils  may  firmly  support  the  jobber; 
another  may  sell  direct  to  retailers ;  a  third  may  deal 
only  by  mail  with  consumers ;  and  a  fourth  may  pin 
his  faith  to  house-to-house  canvassing.  One  manu- 
facturer may  use  different  channels  in  different  mar- 
kets.  A  long  familiar  method  of  marketing  may  be 
changed  over-night  by  some  manufacturer,  without 
any  radical  change  in  the  product  or  in  the  character 
of  the  market. 

This  does  not  mean  that  the  selection  of  trade  chan- 
nels is  a  matter  of  whim.  The  whole  marketing 
world  is  in  a  state  of  flux,  and  the  man  with  some- 
thing to  sell  must  not  take  accustomed  marketing 
methods  for  granted.  Custom  is  an  aid  in  selUng 
but,  if  it  is  bUndly  f  oUowed,  many  avenues  of  market- 
ing are  likely  to  be  undiscovered.  Close  analysis 
to  determine  what  is  the  one  right  method  for  any 
manufacturer  and  his  goods  is  more  necessary  now 
than  ever  before  if  competition  is  to  be  met  and  sales 
are  to  be  increased. 

7.  Manufacturers'  chain  stores. — One  trade  chan- 
nel has  not  been  heretofore  discussed — reaching  con- 


REACHING  THE  MARKET 


191 


sumers  directly  thru  chains  of  stores  owned  by  the 
manufacturer.  These  chains  are  common  in  some 
lines,  notably  men's  hats,  tobacco  products,  con- 
fectionery and  shoes.  It  is  usually  believed  that  the 
possibility  of  extending  the  field  for  such  chains  is 
limited.  Ordinarily  a  single  manufacturer  can  put 
one  of  his  stores  only  into  a  comparatively  large 
community.  It  is  only  in  a  few  lines  that  the  manu- 
facturer's chain  store  is  a  possibility.  A  manufac- 
turer of  saws,  watches,  thread,  cotton  cloth  or  of 
countless  other  products  could  not  operate  his  own 
stores  except  under  exceptional  circumstances. 

A  suggested  modification  of  the  chain  of  stores 
owned  by  a  single  manufacturer  is  a  chain  owned  by 
a  group  of  non-competing  manufacturers.  For  in- 
stance, a  hat  maker,  a  manufacturer  of  men's  cloth- 
ing and  a  shoe  manufacturer  might  combine  to  sell 
their  products  in  a  chain  of  retail  establishments. 
The  difficulties  of  cooperative  effort  of  this  charac- 
ter have  kept  manufacturers  from  trying  it.  Even 
if  it  were  a  workable  plan,  it  is  doubtful  whether  the 
cooperative  chains  would  have  greater  opportunity 
for  wide  development  than  the  chain  of  a  single  manu- 
facturer. 

Manufacturers  are  loath,  as  a  rule,  to  estabhsh 
chains  of  stores.  Manufacturing  and  retailing  are 
two  distinct  activities ;  it  usually  takes  a  distinct  type 
of  training  and  ability  to  be  successful  in  each.  The 
manufacturer  is  likely  to  think  he  can  use  his  capital 
to  greater  advantage  in  extending  his  manufactur- 


192       MARKETING  AND  MERCHANDISING 


REACHING  THE  MARKET 


193 


ing  facilities  than  in  branching  out  into  retailing. 
If  a  manufacturer  does  not  sell  exclusively  in  his  own 
stores,  the  fact  that  he  operates  one  or  more  stores 
of  his  own  will  have  a  disturbing  effect  on  indepen- 
dent dealers  to  whom  he  must  look  as  the  chief  outlet 
for  his  goods.  There  are  relatively  few  manufac- 
turers' chains,  and  it  is  seldom  that  a  new  one  is 
established. 

8.  Selling  hy  mail  or  by  salesmen. — The  chosen 
trade  channels  may  usually  be  reached  either  by 
salesmen  or  by  direct-by-mail  sales  letters  and  adver- 
tising. The  exclusive  cultivation  of  the  market  by 
sales  letters  and  by  advertising  is  rare  when  sales  are 
made  to  jobbers.  At  the  outset  this  method  of  sell- 
ing would  probably  produce  few  orders.  A  few  com- 
modities are  so  widely  known  and  so  widely  adver- 
tised that  the  manufacturers  have  been  able  largely 
to  dispense  with  salesmen  and  to  rely  on  jobbers  send- 
ing in  their  orders  by  mail  as  a  result  of  consumer  and 
dealer  demand  for  the  goods.  Food  products  that 
sell  over  and  over  again  to  the  same  consumers  are 
the  chief  commodities  in  this  class.  Mail-order  sell- 
ing at  wholesale  is  not  unusual.  A  few  nationally 
known  jobbing  houses  do  business  exclusively  by 
means  of  catalogs  and  mail-orders.  Many  more 
smaller  wholesalers  operate  in  the  same  way.  The 
number  of  manufacturers  seUing  direct  by  mail  to 
consumers  is  very  large. 

In  using  the  mail-order  method  exclusively  to  ap- 
peal to  retailers,  the  manufacturer  or  jobber  must 


0 

usually  offer  the  price  inducements  if  he  is  to  com- 
pete successfully  against  others  whose  representatives 
personally  solicit  the  trade.  Selling  exclusively  by 
mail  to  dealers  has  obvious  limitations  but  as  a  sup- 
plementary selling  method  its  possibilities  are  great. 
A  manufacturer  making  a  single  product  of  low  sell- 
ing price  can  not  build  large  sales  to  consumers  if 
he  depends  on  mail-sales  exclusively.  Nor  is  this 
method  of  selling  usually  applicable  to  the  sale  of 
-articles  requiring  a  considerable  outlay  of  money  or 
requiring  technical  knowledge  for  installation  or  up- 
keep. Between  these  two  extremes  the  field  for  the 
selection  of  either  salesmen  or  the  mails  as  the  medium 
thru  which  the  consumer  is  to  be  reached  is  very 
large.  A  selection  of  one  or  the  other,  if  only  one 
is  to  be  used,  will  depend  less  on  proved  principles 
or  the  experiences  of  others  than  on  competitive  con- 
ditions, questions  of  expediency  and  the  personal 
inclination  of  the  manufacturer.  Selling  by  mail  to 
retailers  and  consumers  has  been  discussed  in  the 
chapter  on  "The  Mail-Order  House." 

9.  Prices. — Selling  prices  depend  on  the  cost  of 
production,  the  expense  of  selling,  on  profit  and  on 
competition.  They  may  be  fixed  and  certain  for 
each  class  of  sale  or  of  customer,  or  they  may  be 
uncertain  and  subject  to  the  bargaining  ability  of 
the  salesman.  The  manufacturer  must  decide 
whether  he  will  sell  to  all  classes  of  buyers  at  the 
same  time,  or  whether  he  will  recognize  the  customary 
difference  in  prices  to  jobbers,  to  retailers  and  to  con- 


i 


1 


J  1 


194       MARKETING  AND  MERCHANDISING 

siimers.  Is  he  to  sell  at  a  fixed  price  regardless  of 
quantity  purchased,  or  are  his  prices  to  vary  with 
quantities?  If  the  latter,  what  quantity  discounts 
will  work  to  the  greatest  advantage  of  his  dealers  as 
well  as  himself.  Shall  he  publish  net  price-lists  for 
various  classes  of  customers,  or  shall  he  publish  only 
gross  prices  subject  to  varying  discounts  for  differ- 
ent buyers  and  different  conditions  of  sale?  The 
chapter  on  "Price  Policies  and  Price  Maintenance" 
treats  of  these  problems  in  detail. 

10.  Selling  in  bulk  or  in  packages. — Shall  a  manu- 
facturer sell  his  goods  in  bulk  or  in  packages?  Shall 
he  sell  them  under  his  own  trade-mark  and  brand 
names,  or  shall  he  identify  them  only  by  the  private 
brands  of  his  distributors?  Are  the  jobber  and  re- 
tailer better  off  if  they  handle  goods  with  the  manu- 
facturer's trade-mark  or  with  brand  names  of  their 
own?  This  phase  of  selling  policy  is  discussed  in 
the  chapter  on  "The  Private  Brand  Problem." 

11.  Trade-marks  and  cartons. — If  a  manufacturer 
sells  his  goods  in  packages?  and  if  he  seeks  to  have 
dealers  and  consumers  identify  them  by  brand  names, 
the  selection  of  suitable  names,  trade-marks  and  pack- 
ages is  a  problem  of  first  importance.  A  name  that 
complies  with  commercial  and  legal  requirements 
may  carry  a  product  a  long  way  to  success,  while  a 
poor  name  or  one  that  can  not  be  protected  may  dis- 
astrously handicap  a  product  or  be  the  source  of  end- 
less difficulties.  A  package  is  not  something  merely 
to  contain  a  product;  it  is  an  advertisement.     If  it  is 


REACHING  THE  MARKET 


195 


unique  and  attractive,  it  may  have  tremendous  sell- 
ing force ;  if  it  is  weak  and  common-place,  it  will  put 
a  heavy  burden  on  the  salesmen  and  on  the  advertis- 
ing. The  problem  of  getting  the  right  name  and  the 
right  carton  is  so  important  that  it  is  discussed  in  a 
separate  chapter  on  "Trade-Marks  and  Packages." 
12.  Place  of  advertising. — To  what  extent  is  ad- 
vertising to  be  used  as  an  aid  in  selling?  Is  it  to 
bear  the  whole  burden  of  selling,  or  is  it  to  supple- 
ment the  work  of  personal  salesmen?  Is  it  to  be 
educative  in  the  sense  of  developing  new  classes  of 
customers  or  teaching  them  new  uses  of  the  product ; 
is  it  to  be  chiefly  competitive— an  added  weapon  in 
fighting  for  position  in  an  established  market;  or  is 
it  to  be  protective — insurance  against  competition 
that  may  develop  in  the  future?  Can  advertising 
be  expected  really  to  induce  active  and  insistent  con- 
sumer demand,  or  is  its  function  primarily  to  create 
a  favorable  public  opinion  and  ready  consumer  ac- 
ceptance of  the  product?  Many  manufacturers  un- 
dertake advertising  without  consciously  fixing  its 
place  in  their  selling  schemes.  Advertising  can  do 
much  but  its  aid  must  be  invoked  with  far-sighted 
vision  and  a  knowledge  of  its  limitations  as  well  as 
of  its  possibilities.  Many  so-called  advertising  fail- 
ures are  due,  not  to  a  failure  of  advertising,  but  to  a 
failure  to  plan  definitely  for  what  it  is  intended  to  do 
and  to  use  it  in  the  way  and  in  the  degree  that  are 
necessary  if  it  is  to  accomplish  the  desired  purpose. 
A  separate  chapter  in  this  Text,  on  "National  Ad- 


I 


I 

■ 


196       MARKETING  AND  MERCHANDISING 

vertising  and  the  Dealer/'  treats  of  advertising  as 
it  affects  the  relation  between  manufacturers  and  dis- 
tributors. Other  Texts  treat  of  the  principles  and 
the  practice  of  advertising. 

13.  Eocclusive  agency  problems. — Shall  the  manu- 
facturer who  sells  thru  dealers  sell  thru  one  exclu- 
sive agency  in  a  community  or  section  of  a  commun- 
ity, thru  carefully  selected  dealers  or  classes  of 
dealers,  or  thru  any  dealer  who  may  be  willing  to 
handle  his  product?  The  problems  of  selling  policy 
involved  in  the  practice  of  general  distribution  as  op- 
posed to  the  selling  or  buying  of  goods  on  an  exclu- 
sive basis  are  discussed  in  one  of  the  following 
chapters. 

14.  Credit. — To  what  extent  is  the  business  to  be 
conducted  on  a  credit  basis?  If  the  industry  is  one 
in  which  cash  sales  are  the  rule,  shall  the  individual 
manufacturer  take  advantage  of  this  fortunate  con- 
dition, or  shall  he  offer  credit  as  a  competitive  sell- 
ing point?  If  credit  is  the  rule,  shall  the  individual 
manufacturer  follow  the  procession,  or  shall  he  avoid 
losses  and  reduce  operating  expenses  by  doing  only 
a  cash  business?  Obviously,  in  this  case,  he  must 
offer  unusual  inducements  of  price,  quality,  or  service 
if  he  is  to  develop  a  large  business  in  a  competitive 
field.  The  question  of  credit  or  cash  involves  at 
times  questions  of  public  policy.  The  extensive  sales 
of  high-priced  luxuries  on  credit  during  the  boom 
period  following  the  Great  War  did  its  part  in  pro- 
ducing high  prices  and  credit  inflation. 


REACHING  THE  MARKET 


197 


15.  Guarantees.— M^rkeimg  poHcy  should  ex- 
press the  manufacturer's  attitude  toward  his  product 
and  his  customers.  Is  he  to  stand  absolutely  behind 
the  quality  and  service  of  his  goods,  and  is  he  to  pro- 
tect the  dealer  in  a  similar  stand?  So  unusual  was 
such  a  pohcy  in  olden  days  that  the  common  law  de- 
veloped the  maxim  of  caveat  emptor,  let  the  buyer 
beware.  Few  reputable  manufacturers  today  are 
willing  to  hide  behind  this  legal  justification  of  un- 
sound practices.  The  manufacturer  or  dealer  who 
does  not  in  some  degree  guarantee  the  things  he  sells 
is  decidedly  the  exception.  Regardless  of  expressed 
or  implied  warranty  when  he  makes  a  sale,  he  holds 
himself  responsible  for  the  quality  and  workmanship 
of  his  goods  and  for  the  service  they  will  give  to  the 
buyer. 

The  application  of  this  policy  to  the  individual 
product  may  vary  with  the  character  of  the  product, 
the  conditions  of  the  sale  and  the  uses  to  which  the 
product  is  put.  Goods  sold  as  "factory  rejects"  may 
legitimately  be  sold  without  guarantee  of  any  kind. 
The  manufacturer  of  burglar-proof  safes  can  not 
guarantee  the  safety  of  the  contents  of  the  safe,  be- 
cause he  can  not  be  certain  that  the  safe  is  properly 
closed  and  locked.  The  producer  of  goods  obviously 
subject  to  quick  deterioration,  such  as  certain  food 
products,  can  not  be  held  responsible  if  they  are  held 
too  long  or  are  not  properly  stored.  On  the  other 
hand,  some  manufacturers  and  distributors  adjust 
all  complaints  on  the  principle  that  "the  customer  is 


198       MARKETING  AND  MERCHANDISING 


REACHING  THE  MARKET 


199 


always  right."  Between  this  policy  and  the  other 
extreme  of  no  guarantee  at  all  there  are  all  shades 
of  warranties  adapted  to  particular  products  and 
particular  conditions.  The  precise  guarantee  that  is 
to  apply  in  any  particular  case  should  be  definitely 
determined  and,  whether  expressed  or  not,  should 
be  thoroly  understood  by  every  customer  and  pros- 
pect. As  a  business  builder  no  other  policy  is 
more  effective  than  one  that  binds  the  seller  to  stand 
behind  his  goods.  A  business  based  on  this  policy 
can  make  many  mistakes  and  still  grow  steadily  and 
profitably  in  popular  favor. 

16.  Service. — Finally,  the  manufacturer  must  de- 
cide the  matter  of  service.  Service  may  mean  a  con- 
tinuing interest  in  the  customer  after  he  has  bought 
the  goods.  It  may  mean  real  helpfulness  preceding 
the  sale,  with  the  purpose  of  fitting  the  product  defi- 
nitely to  the  customer's  needs.  It  may  mean  oflFer- 
ing  to  the  customer  assistance  and  information  in 
matters  only  indirectly  connected  with  the  seller's 
goods.  It  may  mean  nothing  at  all.  There  is  a 
great  deal  of  talk  about  service,  which  sometimes  be- 
gins and  ends  in  conversation.  It  is  easy  to  over- 
sell service.  It  is  never  possible  to  over-serve.  In 
general,  service,  as  the  word  is  properly  applied  in 
modern  business,  means  giving  the  buyer  something 
more  than  so  many  yards  or  so  many  pounds  or  so 
many  units  in  exchange  for  the  market  price.  It 
means  the  doing  of  things  that  increase  the  comfort, 
convenience,  and  happiness  of  the  buyer,  and  increase 


Jill 


his  good-will  for  the  seller.  A  policy  of  real  service 
is  a  policy  of  enlightened  selfishness.  The  buyer 
pays,  of  course,  for  all  he  gets,  whether  it  is  a  rest 
room,  or  a  service  station,  or  the  skill  of  a  manufac- 
turer's engineers  which  is  placed  at  his  disposal.  But 
he  is  often  better  pleased  to  pay  for  a  product  with 
service  than  he  would  be  to  buy  the  bare  product  even 
at  a  lower  price.  The  right  kind  of  service  is  not  in- 
expensive but  it  makes  sales.  No  manufacturer  or 
dealer  can  afford  to  omit  service  of  some  kind  from 
his  selling  policy. 

17.  Charting  the  cost  of  marketing. — The  organ- 
izing of  marketing  procedure  follows  the  determina- 
tion of  marketing  poKcy.  The  first  step  should  be 
the  preparation  of  a  budget  of  estimated  receipts  and 
expenditures.  One  complete  budget  of  this  sort  in- 
cluded the  following  items :  Tabulation  of  complete 
expense  balanced  against  returns  from  ninety  per 
cent  of  proposed  first  year's  output ;  detail  of  manu- 
facturing costs;  detail  of  sales  organization  expense; 
detail  of  advertising  expense ;  detail  of  expected  vol- 
ume of  sales  with  basis  of  estimating;  detail  of  pos- 
sible lesser  and  greater  volume  of  sales,  with  accom- 
panying schedules  of  graduated  expense  and  returns ; 
detail  of  administrative  financing  of  the  business. 

The  manufacturer  who  is  analyzing  an  established 
business  can  start  with  definite  facts  regarding  pres- 
ent costs ;  he  needs  to  estimate  only  the  expected  in- 
crease in  business  and  the  cost  of  obtaining  it.  The 
manufacturer  starting  to  sell  must  deal  entirely  in 


•i 


Ill 


i 


i 


200       MARKETING  AND  MERCHANDISING 

estimates,  except  when  he  can  learn  the  manufactur- 
ing and  selling  costs  of  a  competing  or  similar  line. 
These  estimates  are  not  easy  to  make  and  yet  they 
are  possibly  the  most  important  single  part  of  the 
whole  marketing  plan.  Many  campaigns  have  failed 
because  the  expense  of  getting  business  proved  to  be 
greater  than  any  reasonable  expectation  of  sales 
would  warrant ;  because  manufacturing  costs  had  not 
been  adequately  studied  before  prices  and  profits 
were  determined;  because  sufficient  capital  was  not 
available  to  tide  over  an  emergency;  or  because  of 
some  other  failure  to  study  the  finances  of  the  enter- 
prise and  to  prepare  properly  for  the  future. 

18.  Organizing  salesmen  and  advertising. — ^After 
the  manufacturer  has  decided  what  he  is  to  do  in 
order  to  sell  his  product,  he  must  make  detailed  plans 
for  putting  his  decision  into  effect.  This  means  or- 
ganizing his  selling  force  if  he  is  to  use  salesmen  and 
organizing  the  advertising  if  he  is  to  use  advertising. 
The  former  includes  planning  for  the  organization 
of  the  sales  department,  hiring  the  salesmen,  train- 
ing them,  dividing  the  territory,  fixing  upon  a  method 
of  compensation,  devising  salesmen's  reports,  prepar- 
ing standard  methods  of  presentation,  arranging  for 
samples,  models,  and  demonstrations,  selecting 
methods  of  keeping  in  touch  with  the  salesmen,  plan- 
ning methods  of  inducing  the  men  to  do  their  best, 
and  a  hundred  other  details  that  are  considered  in 
the  Text  on  "Salesmanship  and  Sales  Management." 
Organizing  the  advertising  includes  simflar  items. 


REACHING  THE  MARKET 


201 


discussed  in  the  Texts  on  "Advertising  Principles" 
and  "Advertising  Campaigns" — for  example,  choos- 
ing agency  connections,  organizing  the  advertising 
department,  selecting  the  proper  advertising  appeal, 
choosing  mediums,  writing  copy,  obtaining  illustra- 
tions, making  layouts,  placing  advertisements  and 
checking  returns. 

There  should  be  chronological  schedules  of  factory 
production  and  delivery,  of  sales  organization  work, 
of  all  the  kinds  of  advertising  and  follow-up  that  are 
to  be  used,  and  of  the  aid  to  be  given  dealers  if  dealers 
are  to  be  used  in  the  marketing  campaign.  The  pur- 
pose of  referring  here  to  all  the  many  details  of  sell- 
ing and  advertising  is  to  emphasize  the  necessity  of 
giving  them  all  careful  consideration  and  of  definitely 
planning  for  everything  that  ought  to  be  done  be- 
fore any  of  the  machinery  of  selling  is  set  in  motion. 

19.  Team  play. — Factory  officials  who  do  not 
understand  selling,  and  salesmen  who  do  not  under- 
stand manufacturing  slow  up  the  machinery  of  busi- 
ness progress.  Lack  of  sympathy,  based  on  lack 
of  mutual  understanding,  between  the  factory  and 
the  sales  force  is  so  common  as  to  be  often  taken  for 
granted.  This  is  wasteful  and  unnecessary.  Plans 
should  be  made  to  inform  salesmen  of  manufacturing 
problems  and  to  inform  factory  officials  of  selling 
problems  to  such  an  extent  that  they  will  mutually 
appreciate  the  difficulties  that  each  group  encounters 
in  promoting  the  interests  of  the  business.  Plans 
should  also  be  made  to  insure  proper  team  play  of 


I 


202       MARKETING  AND  MERCHANDISING 

advertising  and  personal  salesmanship.  Salesmen 
should  be  taught  the  functions  and  methods  of  adver- 
tising, and  they  should  be  given  the  training  to  use 
it  most  effectively  in  their  work.  The  advertising 
department  must  be  so  closely  coordinated  with  the 
personal  sales  organization  that  all  its  plans  and  prac- 
tices will  fit  closely  into  the  activities  of  the  salesmen. 
Personal  salesmanship  and  advertising  are  the  two 
cog-wheels  that  move  the  machinery  of  business. 
Unless  the  cogs  mesh  perfectly,  there  is  friction,  with 
lost  motion  and  inefficiency. 

20.  Distribution  and  dealer  cooperation. — When 
a  product  is  sold  thru  retailers,  the  process  of  induc- 
ing dealers  to  stock  and  sell  the  goods  is  technically 
known  as  getting  distribution.     The  success  of  the 
manufacturer  is  absolutely  dependent  on  getting  his 
goods  into  a  satisfactory  number  of  stores  and  on 
getting  the  dealers  to  take  an  interest  in  their  sale. 
Most  retail  dealers  handle  the  products  of  a  large 
number  of  manufacturers.     Altho  it  is  to  their  in- 
terest to  sell  as  much  as  they  can  of  everything  that 
they  handle,  it  is  a  physical  impossibility  for  them  to 
get  actively  behind  the  sale  of  every  item  in  their 
extensive   stocks.     Every   aggressive   manufacturer 
seeks  by  some  means  to  enlist  his  dealers'  active  co- 
operation in  pushing  the  sale  of  his  goods.     The 
competition  for  the  dealers'  interest  is  so  great  that 
the  manufacturer  finds  it  necessary  to  give  to  the 
solution  of  the  problems  of  distribution  and  dealer  co- 
operation a  large  part  of  his  thought  and  resources. 


REACHING  THE  MARKET 


203 


So  vital  is  the  problem  that  it  receives  separate 
treatment  in  a  later  chapter. 

21.  Sales  records. — Finally,  the  marketing  plan 
should  provide  for  complete  records  of  everything 
that  is  done  and  the  results  that  are  obtained.  Plans 
should  be  laid  for  recording  the  exact  cost  of  every 
phase  of  the  salesmen's  activities,  the  cost  of  each 
form  of  advertising  used,  the  cost  of  sales  and  adver- 
tising administration,  the  total  marketing  expense, 
subdivided  into  as  great  detail  as  may  be  desirable, 
the  sales  attributable  to  the  different  methods  of  sales 
stimulation,  records  of  consumption  of  the  product 
by  individual  buyers,  by  town,  salesmen's  territories, 
states,  or  other  marketing  units,  net  profits  from  each 
form  of  selling  effort  in  each  subdivision  of  the  mar- 
ket, comparative  statements  of  costs  and  sales  and 
profits  for  successive  years  and,  in  short,  every  kind 
of  record  that  may  enable  the  management  to  know 
exactly  where  the  business  stands,  the  cost  and  re- 
sults of  methods  that  have  been  used  to  stimulate  it 
and  the  places  where  stimulation  is  needed.  The 
business  general  fighting  a  competitive  battle  must 
have  at  his  command  all  possible  records  of  needs, 
results  and  resources  so  that  he  can  base  his  strategy 
on  known  facts  and  use  with  maximum  efficiency  the 
forces  at  his  command. 

SUMMARY  OF  STEPS  IN  THE  MARKETING 

CAMPAIGN 

Study  of  the  product 
Selection  of  selling  appeals 


I 


n 


204       MARKETING  AND  MERCHANDISING 

Study  of  the  market 

Determination  of  selling  policies 

Trade  channels 

Method  of  appealing  to  buyers — by  salesmen  or  by  mail 
Prices 

Sales  in  bulk  or  in  containers 

Trade-marks  and  packages 

The  use  of  advertising,  and  its  purposes 

Exclusive  •  agencies  versus  general  distribution 

Credit 

Guarantees 
Service 
Organization  of  marketing  procedure 
Charting  the  cost  of  marketing 
Organizing  the  sales  force 
Organizing  the  advertising 

Coordinating  production,  personal  salesmanship,  and  ad- 
vertising 
Getting  Distribution    ' 
Obtaining  dealer  cooperation 
Maintaining  marketing  records 

REVIEW 

What  are  included  under  marketing  policies  and  marketing 
procedure  ? 

Discuss   the  influence  of  custom  upon  trade  channels. 

Why  is  a  manufacturer  averse  to  establishing  his  own  chain 
store  as  a  trade  channel? 

Describe  the  methods  by  which  the  usual  trade  channels  are 
reached  and  the  advantages  of  each  method. 

How  shall  a  manufacturer  determine  to  what  extent  he  shall 
offer  credit? 

Discuss  the  question  of  guarantees. 

What  is  meant  by  service  and  what  value  has  it  to  the  man- 
ufacturer ? 

How  would  you  prepare  a  budget  to  determine  the  cost  of 
marketing? 

How  should  sales  records  be  kept? 


chapter  XIII 

TRADE-MARKS  AND  PACKAGES 

1.  Value  of  trade-marks. — A  trade-mark  may  be 
a  business  asset  of  great  value.  Its  first  purpose  is 
to  identify  a  manufacturer's  products,  but  it  may  be- 
come a  symbol  of  the  good-will  that  results  from  the 
quality  of  his  goods  and  from  his  fair  dealing.  A 
trade-mark  is  a  manufacturer's  attestation  of  pride  in 
his  product — ^his  affidavit  that  his  goods  are  worthy 
to  go  out  from  the  factory  carrying  his  mark  of  ap- 
proval. It  is  not  necessary  that  a  product  be  adver- 
tised in  order  to  make  the  problem  of  selecting  and 
protecting  the  trade-mark  an  important  one.  Manu- 
facturers gave  evidence  of  faith  in  their  products  by 
using  marks  to  identify  them  long  before  the  days 
of  modern  advertising.  Advertising,  however,  has  in- 
creased the  importance  of  trade-marks.  An  adver- 
tising manufacturer  loses  much  of  the  value  of  his 
publicity  unless  consumers  can  readily  identify  his 
goods  and  unless  in  the  public's  mind  every  thought 
of  these  goods  is  immediately  associated  with  some 
word  or  image  that  stands  for  this  product  and  this 
product  alone. 

A  product  may  have  real  distinction  and  yet  not 

205 


i 


206       MARKETING  AND  MERCHANDISING 

be  recognizable  in  the  market.  A  trade-mark  pro- 
vides the  means  of  recognizing  distinction.  The 
trade-mark  is  the  connecting  link  between  the  manu- 
facturer and  the  ultimate  consumer.  Just  as  an  hon- 
ored name  of  an  individual  stands  for  certain  qualities 
of  mind  and  of  heart,  so  an  honored  trade-mark  in 
commerce  stands  for  the  commercial  honor  and  manu- 
facturing skill  that  are  at  the  foundation  of  every 
successful  manufacturing  business. 

2.  When  technical  advice  is  needed. — Trade-mark 
rules  and  requirements  abound  in  technicalities,  but 
it  is  not  our  purpose  to  deal  with  these  details.  A 
manufacturer  who  faces  the  task  of  selecting  or  of 
protecting  his  trade-mark  will  be  unwise  if  he  does  not 
enlist  skilled  legal  assistance.  A  little  knowledge  of 
trade-marks  is  a  dangerous  thing  if  it  is  relied  on 
where  money  and  reputation  are  at  stake.  Yet  there 
are  some  simple  trade-mark  facts  that  every  business 
man  should  know.  By  knowing  them,  he  will  be 
able  to  avoid  many  errors  and  he  will  be  able  to  co- 
operate intelligently  with  the  expert  counselors  whom 
he  should  consult  on  all  his  major  problems  of  trade- 
mark procedure. 

3.  What  is  a  trade-mark?— A  trade-mark  has  been 
defined  by  the  courts  as  "any  sign,  mark,  symbol,  word 
or  words  which  indicate  the  origin  or  ownership  of 
an  article  as  distinguished  from  its  quality,  and  which 
others  h^ve  not  the  equal  right  to  employ  for  the 
same  purpose.     In  its  strictest  sense  it  is  applicable 


TRADE-MARKS  AND  PACKAGES 


207 


only  to  a  vendible  article  of  merchandise  to  which  it  is 
affixed."  Another  judicial  opinion  says  that  "a 
trade-mark  is  a  mark  by  which  the  wares  of  the  owner 
are  known  in  trade.  Its  object  is  twofold;  first,  to 
protect  the  party  using  it  from  competition  with  in- 
ferior articles;  and,  second,  to  protect  the  public  from 
imposition.  .  .  .  The  trade-mark  brands  the  goods 
as  genuine,  just  as  the  signature  of  a  letter  stamps 
it  as  authentic." 

4.  Difference  between  trade-marks  and  patents. — 
Some  people  have  the  mistaken  notion  that  a  trade- 
mark is  like  a  patent — that  it  is  an  exclusive  right 
to  an  idea  or  a  design  granted  to  the  inventor  for 
a  term  of  years,  with  the  purpose  of  rewarding  him 
for  his  ingenuity.  Patents  and  trade-marks  are  en- 
tirely different  things.  A  patent-right  is  solely  the 
creature  of  statute-laws — it  is  a  monopoly  granted 
in  order  to  encourage  inventive  ingenuity.  The  right 
to  use  a  trade-mark  is  not  acquired  thru  the  force  of 
any  statute;  it  arises  thru  use  alone.  No  statute  or 
common  law  can  create  a  right  to  a  trade-mark;  the 
law  can  only  defire  the  right  and  help  to  protect  it. 
The  law  takes  cognizance  of  trade-marks  not  so  much 
to  protect  the  user  as  to  protect  the  public — to  secure 
the  public  from  being  imposed  upon  by  the  attempt 
to  foist  upon  it  a  spurious  article  in  place  of  a  genuine 
one  that  is  in  demand.  While  a  patent  will  be 
granted  for  a  mere  idea  that  may  never  be  incorpo- 
rated in  an  article  of  commerce,  a  trade-mark  does 


208 


MARKETING  AND  MERCHANDISING 


TRADE-MARKS  AND  PACKAGES 


not  even  exist  until  it  has  been  affixed  to  vendible 
merchandise  which  has  actually  passed  from  seller  to 
buyer. 

^^  5.  Technical    trade-marks.—N oi    every    kind    of 
sign,  mark,  symbol,  word  or  words"  used  as  a  trade- 
mark entitles  the  user  to  protection  against  infringe- 
ment.   It  would  be  unjust  and  against  public  policy 
to  protect  any  one  in  the  exclusive  use  of  certain  kinds 
of  marks.    During  many  years  of  trading  in  this 
county,  and  in  England  before  the  United  States 
were  formed,  the  common  law  gradually  built  up 
classifications  and  rules  to  guide  judges  in  distin- 
^ishmg  between  marks  that  carried  with  them  an  ex- 
clusive property  right  to  the  user  and  marks  which  it 
was  against  pubhc  policy  for  the  courts  to  protect. 
1  he  former  became  known  as  technical  trade-marks; 
the  latter  are  really  not  trade-marks  at  all,  altho,  even 
^thout  any  exclusive  property  right  in  them,  they  are 
otten  used  by  manufacturers. 

6.  Purpose  of  trade-mark  statutes. —When  com- 
merce m  manufactured  goods  was  small  and  trade- 
marks were  few  in  number,  the  common  law  sufficed 
to  protect  manufacturers  and  the  public.  With  the 
development  of  the  use  of  trade-marks,  it  became 
advisable  for  Congress  to  provide  regulations  which 
would  define  the  rights  of  owners  of  trade-marks, 
place  the  burden  of  proof  when  controversies  arose 
and  estabhsh  procedure  and  penalties  in  trade-mark 
litigation.     Several  laws  have  been  passed  with  this 


209 


purpose.     We  are  to  consider  here  only  their  basic 
principles. 

7.  Effect  of  registration.— Underlying  all  trade- 
mark legislation  is  the  principle  that  the  registration 
of  trade-marks  with  the  Patent  Office  at  Washington 
gives  to  the  owners  certain  privileges  not  given  to 
owners    of    unregistered    marks.     Registration    of 
some  classes  of  trade-marks  may  be  more  favorable 
to  the  owner  than  registration  of  other  classes  of 
marks.     In  general,  in  the  case  of  the  most  favored 
classes  of  trade-marks,  registration  is  prima  facie 
evidence  that  the  owner  of  the  mark  has  the  exclusive 
right  to  it  thru  prior  and  continued  use.     This  prima 
facie  assumption  of  prior  and  continued  use  may  be 
rebutted  by  evidence  to  the  contrary  but  the  burden 
of  proof  is  on  those  who  contest  the  right.     Registra- 
tion also  gives  certain  advantages  with  respect  to 
jurisdiction  of  courts,  necessity  of  proving  damages  in 
cases   of  infringement,   extent   of  injunctions   and 
amount  of  damages  that  may  be  awarded.     To  obtain 
the  advantages  of  registration  the  owner  of  a  reg- 
istered trade-mark  should  use  in  connection  with  the 
mark  either  on  the  product  itself,  or  where  that  is  not 
practicable,  on  the  container,  the  phrase  "Registered 
in  U.  S.  Patent  Office,"  or  the  shorter  form,  "Reg. 
U.  S.  Pat.  Off." 

8.  Registration  not  necessary  for  protection. — 
Altho  registration  is  usually  sought  by  owners  of 
marks  that  are  suitable  for  registration,  a  word  or 


TRADE-MARKS  AND  PACKAGES 


211 


'    1 


210       MARKETING  AND  MERCHANDISING 

words  or  symbol  may  be  strictly  a  technical  trade- 
mark, subject  to  the  protection  of  the  courts  like 
any  other  property  right,  and  remain  unregistered. 
The  United  States  Supreme  Court  has  said: 

The  right  to  adopt  and  use  a  symbol  or  device  to  distin- 
guish the  goods  or  property  made  or  sold  by  the  person 
whose  mark  it  is,  to  the  exclusion  of  use  by  all  other  per- 
sons, has  long  been  recognized  by  the  common  law  and  the 
chancery  courts  of  England  and  this  country.  ...  It  is  a 
property  right  for  the  violation  of  which  damages  may  be 
recovered  in  an  action  at  law,  and  the  continued  violation 
of  it  will  be  enjoined  by  a  court  of  equity  with  compensa- 
tion for  past  infringement.  This  exclusive  right  was  not 
created  by  the  act  of  Congress,  and  does  not  now  depend 
upon  it  for  its  enforcement. 

Altho  the  notice  of  registry  must  not  accompany  an 
unregistered  trade-mark,  the  phrase  "Trade-mark" 
may  be  used  in  connection  with  the  symbol  or  device. 

9.  General  trade-mark  requirements. — A  technical 
trade-mark,  carrying  with  it  property  rights  which 
the  courts  will  protect,  must  be  an  arbitrary  symbol, 
or  word,  or  words,  or  a  combination  of  a  device  and 
wording,  not  obviously  descriptive  of  the  commodity 
to  which  it  is  to  be  applied.  It  is  against  pubhc 
policy  to  let  any  one  arrogate  to  himself  the  exclusive 
right  to  words,  whether  misspelled  or  not,  that  are 
descriptive — for  example  "Best,"  "Kantleek," 
"Spearmint,"  and  "Naphtha."  The  trade-mark  must 
be  unlike  any  other  trade-mark  already  in  use,  and 
applied  to  the  same  class  of  goods.  A  manufacturer 
making  Acme  paint  can  not  keep  a  tobacco  manu- 


facturer from  making  Acme  cigarettes.     A  trade- 
mark, to  be  protected,  must  not  resemble  the  trade- 
mark of  a  competitor  or  of  a  potential  competitor  to 
such  an  extent  that  the  buying  pubhc  is  likely  to  be 
deceived  or  confused  by  the  resemblance.     It  must 
be  actually  used  in  lawful  trade  (it  can  not  even  be 
registered  until  products  or  containers  carrying  the 
mark  have  passed  in  interstate  sale ) ,  and  it  must  be 
of  such  a  character  that  it  may  be  affixed,  printed 
upon,  woven,  sewed,  branded  or  otherwise  impressed 
upon  the  product  or  the  package.     If  the  trade-mark 
is  the  business  name  of  a  person  or  firm,  it  is  entitled 
to  the  fullest  protection  of  the  trade-mark  statutes 
only  when  written  in  some  distinctive  manner,  or  in 
association  with  a  portrait,  or  in  autographic  form. 
10.  Approved   kinds   of   trade-marks. — To   fulfil 
commercial  requirements  a  trade-mark  should  be  easy 
to  pronounce,  easy  to  remember,  easy  to  spell,  simple 
in  design,  attractive  in  sound  and  appearance,  and 
suggestive  (but  not  descriptive)  of  the  good  qualities 
of  the  merchandise.     Few  trade-marks  fulfil  all  these 
ideal  requirements.     Most  successful  trade-marks  are 
derived  from  the  following  classes:  coined  words — 
Keds,    Kodak,    Celluloid,    Vaseline;    symbols — ^the 
Baker  chocolate  girl,  the  Prudential's  Rock  of  Gib- 
raltar, Dutch  Boy  for  white  lead;  combinations  of 
words  and  symbols — Gargoyle  motor  oil.  Black  Cat 
hosiery;    portraits — Smith    Brothers    cough    drops, 
Mennen,  the  Saturday  Evening  Post's  portrait  of 
Benjamin  Franklin;  fanciful  words,  not  descriptive, 


i 


212       MARKETING  AND  MERCHANDISING 

but  containing  a  suggestion  of  the  use  or  quality  of 
the     product— Springstep     rubber     heels,     Velvet 
tobacco,  Ivory  soap,  Big  Ben  clocks;  historical  or 
mythological   characters — Apollo   pianos   and   other 
articles,  Minerva  yarn ;  initials  or  arbitrary  numbers—- 
B.   V.  D.   underwear,   48-10  air  hose;  Distinctive 
method  of  showing  name  of  person,  firm  or  corpora- 
tion—notably  the  signature  of  Thomas  A.  Edison. 
11.  What  a  trade-mark  should  not  be. — A  technical 
trade-mark,  subject  to  the  protection  of  the  courts, 
must  not  be  so  near  like  another  known  trade-mark 
owned  and  in  use  by  another,  and  appropriated  to 
merchandise  of  the  same  descriptive  qualities,  as  to 
be  likely  to  mislead  an  average  individual;  it  must 
not  be  the  insignia  of  the  Red  Cross,  or  the  flag  or 
coat  of  arms  of  any  foreign  nation,  the  United  States, 
of  any  state,  or  of  any  municipality;  it  must  not  be 
any  design  or  picture  which  has  been  adopted  by  a 
fraternal  society  as  its  emblem;  it  must  not  be  the 
portrait  of  a  living  individual  unless  used  with  his 
permission,  nor  of  any  individual,  living  or  dead,  if 
the  use  would  be  contrary  to  public  policy;  it  must 
not  consist  of  scandalous  or  immoral  matter ;  it  must 
not  be  a  geographical  name  or  term ;  it  must  contain 
no   misrepresentation   of  the   quality,   composition, 
character,  origin,  or  nature  of  the  commodity  with 
which  it  is  used ;  and,  as  stated  before,  it  must  not  be 
descriptive.     Color,  except  in  connection  with  some 
definite,  arbitrary  design,  is  not  the  subject  of  mon- 
opoly as  a  trade-mark. 


TRADE-MARKS  AND  PACKAGES 


213 


Falling  within  the  general  prohibitions  listed  in  the 
preceding  paragraph  there  are  many  words,  devices, 
and  symbols  used  as  trade-marks  and  actually  reg- 
istered as  such,  or  used  and  protected  without  reg- 
istration. This  anomalous  condition  is  due  to  four 
facts:  (1)  Under  certain  acts  of  Congress  regis- 
tration of  almost  any  kind  of  mark  has  been  permitted 
as  a  mere  record  of  a  claim  to  prior  use,  without  neces- 
sarily carrying  with  it  other  important  rights  or 
privileges ;  ( 2 )  under  other  acts,  a  mark  which  could 
not  otherwise  be  protected  under  the  trade-mark 
statutes,  if  it  has  been  in  use  for  a  specified  period 
may  be  entitled  to  all  the  privileges  of  registration; 
(3)  the  interpretation  of  the  prohibition  against  des- 
criptive marks,  for  instance,  has  varied  from  time  to 
time ;  ( 4 )  long  usage  may  have  entitled  the  owners  to 
protection  against  unfair  competition  without  regard 
to  trade-mark  law. 

12.  Difference  between  infringement  and  unfair 
competition. — The  distinction  between  infringement 
of  a  trade-mark  and  unfair  competition  has  been 
clearly  pointed  out  by  judicial  decision: 

An  infringement  of  a  trade-mark  consists  .in  the  use  of 
the  genuine  [mark]  upon  substituted  goods  or  of  an  exact 
copy  or  reproduction  of  the  genuine,  or  in  the  use  of  an  imi- 
tation in  which  the  difference  is  colorable  only,  and  the  re- 
semblance avails  to  mislead  so  that  the  goods  to  which  the 
spurious  trade-mark  is  affixed  are  likely  to  be  mistaken  for 
the  genuine  product;  and  this  upon  the  ground  that  the 
trade-mark  adopted  by  one  is  the  exclusive  property  of  its 
proprietor,  and  such  use  of  the  genuine,  or  such  imitation 


TRADE-MARKS  AND  PACKAGES 


215 


I' 

I 

I 


I 


214       MARKETING  AND  MERCHANDISING 

of  it,  is  an  invasion  of  his  right  and  property.  Unfair 
competition  is  distinguishable  from  the  infringement  of 
a  trade-mark  in  this :  That  it  does  not  necessarily  involve 
the  question  of  the  exclusive  right  of  another  to  the  use  of 
the  name,  symbol,  or  device.  A  word  may  be  purely  gen- 
eric or  descriptive,  and  so  not  capable  of  becoming  an  arbi- 
trary trade-mark,  and  yet  there  may  be  an  unfair  use  of 
such  word  or  symbol  which  will  constitute  unfair  com- 
petition. Thus  a  proper  or  geographical  name  is  not  the 
subject  of  a  trade-mark,  but  may  be  so  used  by  another,  un- 
fairly producing  confusion  of  goods,  and  so  come  under  the 
condemnation  of  unfair  trade,  and  its  use  will  be  enjoined. 

13.  When  trade-marks  can  be  sold.— A  trade-mark 
can  not  be  assigned  or  its  use  licensed,  except  as  an 
incident  to  a  transfer  of  the  business  or  property 
in  connection  with  which  it  has  been  used.  The  object 
of  a  trade-mark  is  to  indicate,  by  its  meaning  or  as- 
sociation, the  origin  or  ownership  of  the  article.  To 
permit  the  sale  or  transfer  of  a  trade-mark  as  an 
abstract  right,  apart  from  the  article  manufactured 
or  apart  from  the  business  and  good-will  of  the 
original  owner,  would  be  likely  to  be  productive  of 
fraud  upon  the  public. 

14.  Trade-marks  of  patented  articles.— When  an 
article  has  been  patented,  the  name,  whether  it  be 
arbitrary  or  that  of  the  inventor,  which  has  become 
the  identifying  and  generic  name  of  the  thinff 
patented,  passes  to  the  publie  with  the  cessation  of  thf 
monopoly  which  the  patent  created.  When  another 
avails  himself  of  this  fact,  he  can  use  the  generic 
designation  freely,  but  on  the  specific  condition  that 
he  must  avoid  any  possibility  of  deception  by  accom- 


panying the  name  with  such  indications  that  the  thing 
manufactured  is  the  work  of  the  one  making  it,  as 
will  unmistakably  inform  the  public  of  that  fact. 
Any  one  can  use  the  original  Singer  patents  and 
make  and  advertise  a  Singer  sewing-machine,  but  he 
must  so  prominently  mark  his  product  with  his  own 
name  that  no  one  will  be  deceived  into  thinking  it 
the  output  of  the  original  Singer  Company. 

15.  Loss  of  trade-mark  rights. — The  property  right 
in  a  trade-mark  arises  solely  from  its  use  to  show 
the  origin  of  goods.  If  it  ceases  to  be  used  by  the 
originator,  it  may  be  appropriated  by  another.  To 
permit  appropriation  by  another,  the  abandonment 
by. the  originator  must  be  intentional.  What  con- 
stitutes intent  to  abandon  is  a  matter  for  the  courts 
to  decide  in  each  individual  case.  Exclusive  rights 
to  a  trade-mark  may  be  lost,  without  intent  to  aban- 
don, by  an  unreasonable  delay  in  bringing  suit  for 
infringement,  or  where  there  has  been  such  technical 
or  actual  acquiescence  in  infringement  as  to  make  the 
relief  asked  for  inequitable  to  others  having  interven- 
ing rights.  The  right  to  relief  against  infringement 
may  be  lost  when  the  owner  of  a  trade-mark  indulges 
in  material  misrepresentation  constituting  a  fraud  on 
the  public.  The  advertising  of  a  lithia  water  as  "bot- 
tled at  the  spring"  when  in  fact  it  was  bottled  at  a 
city  warehouse  was  considered  as  such  misrepresenta- 
tion as  to  deny  to  the  owner  of  the  trade-mark  any 
relief  from  infringement. 

16.  Trade-names. — A  trade-name,  as  distinguished 


I  I 

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216       MARKETING  AND  MERCHANDISING 

from  a  trade-mark,  is  a  word  or  combination  of  words 
serving  to  distinguish  a  certain  manufacturer  or  mer- 
chant and  his  specific  merchandise,  which,  altho  not 
capable  of  exclusive  appropriation  or  registrable  in 
the  Patent  Office  as  a  technical  trade-mark,  will 
nevertheless  be  protected  within  certain  limits  by  the 
courts  from  general  use  by  competitors  thru  the  doc- 
trine of  unfair  competition.  The  word  Wanamaker's 
is  a  trade-name  and  not  a  trade-mark. 

17.  Packages. — Second  only  to  the  trade-mark  as 
a  means  of  providing  sure  identification  of  the  gen- 
uineness of  a  product  is  the  package  in  which  it  is 
sold  to  the  consumer.  The  modern  practice  of 
packing  many  goods  at  the  factory  in  cartons  for  the 
consumer  has  for  its  first  purpose  to  insure  the  fresh- 
ness and  cleanliness  of  the  product  and  to  reduce  the 
expense  and  waste  incurred  in  handling  it  in 
bulk.  Its  second  purpose  is  to  identify  goods,  par- 
ticularly those  that  from  their  nature  can  not  readily 
carry  a  trade-mark,  and  to  make  it  possible  for  the 
package  to  go  a  long  way  toward  selling  itself. 

18.  Suitability  of  the  package. — A  carton  or  pack- 
age should  have  two  quahties,  suitability  and  indi- 
viduality. In  designing  it,  the  manufacturer  should 
look  ahead  thru  all  the  processes  of  distribution  and 
should  visuahze  the  treatment  it  will  receive  at  the 
hands  of  all  classes  of  dealers  and  transporters  until 
it  reaches  the  final  consumer.  The  package  should 
have  suitable  strength  to  remain  intact  and  to  prevent 
damage  to  the  contents  during  its  progress  thru  all 


TRADE-MARKS  AND  PACKAGES 


217 


the  channels  of  trade.  The  material  from  which  it 
is  made  should  provide  protection  and  at  the  same 
time  should  be  economical.  Packaging  is  not  justi- 
fied if  it  results  in  a  net  increase  of  cost  to  the  con- 
sumer. The  shape  and  size  should  receive  careful 
study.  From  the  standpoint  of  the  dealer  and  trans- 
porter, the  package  should  be  convenient  to  handle, 
to  store  and  to  stack.  If  the  product  is  to  remain 
in  the  container  while  being  used  in  the  household, 
proper  shape  and  size  are  highly  important ;  a  carton 
that  is  too  bulky  or  of  awkward  shape  will  kill  the 
sale  of  an  otherwise  admirable  commodity.  The 
color  of  the  carton  has  a  practical  aspect;  particular 
inks  may  adversely  affect,  or  be  affected  by,  the  goods 
in  the  carton,  and  a  carton  that  is  to  be  handled  fre- 
quently must  be  designed  to  eliminate  soiling  as  much 
as  possible. 

19.  Individuality  of  the  package. — A  package  is  an 
advertisement  as  well  as  a  container.  It  should  be 
as  distinctive  as  the  trade-mark  itself.  Simplicity 
should  always  be  the  goal  of  the  designer.  Many 
designs  adopted  years  ago  have  acquired  a  degree  of 
recognition  value  that  makes  their  retention  advisable, 
and  yet  are  so  crude  and  complicated  as  to  make  it 
difficult  for  them  to  compete  with  newer  products  in 
more  attractive  packages.  The  design  should  possess 
the  quality  of  strength  or  of  daintiness  in  accordance 
with  the  nature  of  the  contents  and  the  class  of  people 
to  whom  it  is  intended  to  appeal.  The  design  should 
be  sufficiently  striking  to  arrest  the  eye ;  it  will  com- 


I 


218       MARKETING  AND  MERCHANDISING 


pete  for  the  attention  of  the  customer  and  the  sales- 
people with  many  other  products  on  the  dealer's 
shelves.  The  essential  features  of  the  design  should 
be  repeated  on  the  front  and  back,  and  possibly  on 
the  ends  of  the  carton  as  well,  to  insure  proper  display 
no  matter  how  the  dealer  stacks  the  packages. 
Wherever  possible  the  trade-mark  should  be  shown 
on  the  package  as  well  as  on  the  product  itself.  It 
is  advantageous  to  use  the  same  general  design  on 
individual  cartons,  on  display  cartons,  and  on  the 
packing  cases — uniformity  of  all  labels  helps  to  im- 
press the  design  on  the  pubhc.  Labels  and  cartons 
for  families  of  products  are  most  effective  when  they 
all  conform  to  a  certain  type,  possessing  perhaps  the 
unifying  feature  of  a  common  color  or  combination 
of  colors,  and  differing  only  to  the  minimum  extent 
that  the  individual  names  and  products  may  require. 

REVIEW 

Of  what  value  is  a  trade-mark  to  a  manufacturer? 

What  is  the  object  of  a  trade-mark? 

What  differences  exist  between  trade-marks  and  patents? 

What  rights  and  privileges  do  owners  of  registered  trade- 
marks secure? 

Discuss  the  general  requirements  of  a  trade-mark.  What 
qualities  should  it  have  to  meet  commercial  needs? 

Why  are  goods  put  up  in  packages? 

What  qualities  should  the  carton  or  package  have?     . 


CHAPTER  XIV 

EXCLUSIVE  AGENCIES 

1.  Selective  distribution^ — One  of  the  important 
questions  that  must  be  answered  by  the  manufacturer 
who  sells  thru  dealers  is  whether  he  will  sell  his  goods 
( 1 )  thru  one  exclusive  agency  in  a  community  or  sec- 
tion of  a  community;  (2)  thru  carefully  selected 
dealers  or  classes  of  dealers;  or  (3)  thru  any  dealer 
in  a  community  who  may  be  willing  to  handle  his  prod- 
uct. The  second  of  the  three  methods  is  probably 
the  most  common.  Many  manufacturers,  with  no 
intention  of  recognizing  the  exclusive  agency  prin- 
ciple, pick  their  retail  outlets,  keeping  their  goods  out 
of  the  hands  of  certain  dealers  whose  activities  in 
support  of  the  goods  might  antagonize  other  dealers 
whose  support  is  especially  desired  and  sought  by  the 
manufacturer.  In  any  discussion  of  the  exclusive 
agency  principle  manufacturers  who  do  this  are  to  be 
classed  with  those  who  follow  the  third  method  of 
selling  thru  any  dealer  who  will  stock  their  goods. 
Selling  thru  exclusive  agencies,  as  the  term  is  com- 
monly understood,  is  not  a  matter  of  selecting  dealers 
by  classes ;  it  is  a  matter  of  selecting  dealers  by  geo- 
graphical location. 

2.  What  is  an  exclusive  agency? — Strictly  speak- 

219 


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220       MARKETING  AND  MERCHANDISING 

ing,  an  exclusive  agent  is  a  dealer  who  alone  in  his 
town  or  city  or  in  his  section  of  a  city  handles  a 
specific  brand  of  goods.  The  purpose  of  the  manu- 
facturer is  to  give  him  exclusive  control  over  distri- 
bution of  the  goods  thruout  the  entire  territory  that 
the  dealer's  activities  can  effectively  cover.  It  is  this 
practice,  as  compared  with  all  other  methods  of  sell- 
ing thru  dealers,  that  we  are  to  consider  in  this  chap- 
ter. The  exclusive  agency  principle  may  be  applied 
either  to  wholesale  or  to  retail  distributors.  Our  dis- 
cussion will  include  both  groups. 

8.  Some  legal  questions. — In  one  kind  of  exclusive 
agency  arrangement,  the  manufacturer  and  dealer 
enter  into  an  agreement  that  binds  the  manufacturer 
not  to  sell  thru  any  other  dealer  in  the  community 
and  binds  the  dealer  to  give  his  best  attention  to  the 
manufacturer's  goods.  Normally  there  is  no  legal 
objection  to  an  agreement  or  understanding  of  this 
sort.  At  times,  however,  the  agreement  has  gone 
further;  the  dealer  has  agreed  that  he  will  not  handle 
any  competing  line  of  goods.  Bearing  on  this  prac- 
tice, the  Clayton  Anti-Trust  Law,  passed  in  1914, 
contains  the  following  clause: 

It  shall  be  unlawful  for  any  person  ...  to  lease  or  make 
a  sale  or  contract  for  sale  of  goods  ...  on  the  condition, 
agreement,  or  understanding  that  the  lessee  or  purchaser 
thereof  shall  not  use  or  deal  in  the  goods  ...  of  a  com- 
petitor or  competitors  of  the  lessor  or  seller,  where  the 
effect  of  such  lease,  sale,  or  contract  for  sale,  or  such  con- 
dition, agreement,  or  understanding  may  be  to  substantially 


EXCLUSIVE  AGENCIES 


221 


lessen  competition  or  tend  to   create  a  monopoly  in  any 
line  of  commerce. 

This  clause  does  not  definitely  prohibit  agreements 
on  the  part  of  exclusive  agents  not  to  handle  com- 
peting lines;  it  prohibits  them  only  when  the  effect 
"may  be  to  substantially  lessen  competition,  etc." 
Just  when  this  may  be,  no  one  can  say  with  certainty. 
Each  situation  as  it  arises  must  be  decided  on  its  own 
merits.  The  wording  of  the  law  suggests  a  certain 
public  attitude  toward  so-called  binding  or  tying  con- 
tracts which  manufacturers  and  dealers  should  not 
disregard.  No  manufacturer  should  contemplate  any 
kind  of  exclusive  agency  arrangement  without  the 
assurance  by  competent  legal  counsel  that  he  is  acting 
well  within  his  rights.  Statutory  restrictions  on  busi- 
ness have  increased  so  rapidly  in  scope  and  in  number 
that  many  of  the  legal  prohibitions  are  not  yet  sup- 
ported by  universal  pubhc  opinion  even  among  right- 
thinking  and  wholly  honorable  business  men.  Stat- 
utes have  made  illegal  many  things  about  which  there 
still  is  honest  difference  of  opinion  as  to  their  morality 
and  their  beneficial  or  deleterious  effect  on  the  nation. 
A  business  man  can  no  longer  afford  to  justify  his 
actions  by  his  mere  intent  to  deal  honestly  and  fairly 
with  the  public.  He  must  be  sure  he  is  not  violating 
some  recently  written  code,  based  either  on  political 
expediency  or  on  some  real  change  in  basic  normal 
standards  to  which  he  must  learn  to  adapt  his  own 
thoughts  and  his  own  practices. 


II 


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222       MARKETING  AND  MERCHANDISING 

4.  Exclusive  wholescde  outlets. — ^When  a  manu- 
facturer selects  one  jobber  as  his  exclusive  wholesale 
outlet  in  the  section  that  the  jobber  covers,  his  pur- 
pose usually  is  to  get  a  degree  of  support  that  he  could 
not  expect  otherwise.  Jobbers  have  mahy  things  to 
sell ;  they  are  not  inclined  to  give  special  attention  to 
brands  of  goods  handled  by  competing  jobbers  as 
well  as  by  themselves.  If  a  jobber  has  the  ex- 
clusive sale  of  a  product,  he  may  be  induced  to 
get  behind  the  goods  with  real  sales  effort.  A  manu- 
facturer of  a  new  product  that  is  unknown  to  retailers 
and  dealers  may  be  unable  to  get  jobbers  generally 
to  stock  it.  If  he  gives  the  exclusive  sale  to  but  one 
jobber  in  a  section,  and  if  the  goods  really  have 
merit,  he  can  at  times  get  a  foothold  in  the  market 
which  would  be  obtainable  only  with  great  difficulty 
otherwise. 

5.  General  wholesale  distribution. — The  chief  ob- 
jection to  exclusive  wholesale  agencies,  from  the 
manufacturer's  standpoint,  is  the  limited  distribution 
that  usually  results.  Different  retailers  have  differ- 
ent wholesale  connections.  One  jobber  can  not  sell 
all  retailers,  even  in  his  own  territory.  The  manu- 
facturer may  be  forced  to  adopt  the  exclusive  rep- 
resentation principle  in  order  to  get  a  start  but  in 
many  instances  this  method  of  selling  will  not  ulti- 
mately result  in  the  largest  possible  development  of 
his  business.  In  deciding  for  or  against  exclusive 
representation  he  must  often  balance  present  ex- 


EXCLUSIVE  AGENCIES 


223 


pediency  against  ultimate  good.  The  fact  that  this 
plan  of  selling  is  used  by  manufacturers  chiefly  at  the 
urge  of  pressing  necessity  rather  than  by  free  choice 
is  evidence  of  the  general  dislike  of  the  exclusive 
agency  principle  on  the  part  of  manufacturers  who 
sell  thru  jobbers. 

6.  Retail  shopping  lines. — In  deciding  to  apply 
the  principle  of  exclusive  representation  to  retail 
distributors,  the  manufacturer  may  be  influenced  by 
one  of  several  considerations.  A  single  retail  con- 
nection in  a  community  or  in  a  section  of  a  community 
is"  sometimes  held  to  be  desirable  when  the  product  to 
be  sold  constitutes  what  is  known  as  a  "shopping 
line."  A  shopping  line  is  a  line  of  goods  that  are 
usually  purchased  only  after  comparisons  of  value 
and  price  have  been  made  in  several  stores.  Women's 
clothing  is  of  this  character.  So  also  is  nearly  every- 
thing else  in  which  style  plays  a  large  part.  If  the 
consumer  can  be  counted  on  to  go  from  store  to  store 
before  she  finally  makes  up  her  mind  to  buy,  the 
manufacturer  may  be  willing  to  forego  the  advantages 
of  general  distribution  for  the  sake  of  getting  the 
real  sales  efforts  of  one  store  behind  his  line.  This 
same  principle  applies  when  the  purchase  of  a  prod- 
uct represents  a  large  outlay  of  money — farm  machin- 
ery, talking  machines,  vacuum  cleaners,  for  example. 
There  is  no  style  element  in  these  products,  but  they 
are  strictly  shopping  lines.  When  people  can  be  ex- 
pected to  give  much  thought  to  a  purchase  and  to 


! 


224       MARKETING  AND  MERCHANDISING 

look  carefully  into  the  merits  of  several  possible  lines 
before  buying,  the  exclusive  agency  method  of  selling 
IS  frequently  used  and  has  real  advantages. 

7.  Influence  of  size  of  stock.— The  manufacturer 
is  at  times  forced  to  grant  exclusive  retail  agencies 
because  of  the  amount  of  capital  needed  if  a  retailer 
is  to  stock  a  representative  assortment  of  his  goods. 
A  retail  grocer  is  willing  to  stock  a  four-dollar  case 
of  breakfast  food  without  asking  for  special  consider- 
ation or  exclusive  representation.  It  is  different 
with  the  retail  furniture  dealer  who  may  carry  an 
average  stock  of  one  manufacturer's  goods  valued  in 
excess  of  a  thousand  dollars.  Normally,  if  a  retailer 
is  to  stock  a  large  and  expensive  assortment  of  one 
manufactiu-er's  goods,  he  seeks  that  degree  of  sales 
insurance  which  ht  believes  is  afforded  by  an  exclu- 
sive agency. 

8.  Need  of  special  sales  efort— When  the  public 
must  be  educated  to  the  value  of  an  article,  no  one 
dealer  can  be  expected  to  put  much  time  upon  it  un- 
less he  has  assurance  that  he  will  get  all  the  business 
he  creates.  Office  machinery,  building  material  and 
automobile  tires  are  largely  sold  thru  semi-exclusive 
agencies,  not  only  because  large  stocks  are  necessary, 
but  also  because  a  considerable  investment  of  time, 
thought  and  effort  is  called  for  if  the  retailer  is  really 
to  merchandise  the  line  and  to  build  it  up  when  the 
agency  is  granted. 

9.  Need  of  quick  turnover. — ^Another  class  of  arti- 
cles is  often  sold  on  an  exclusive  or  limited  agency 


EXCLUSIVE  AGENCIES 


225 


basis  in  order  to  assure  such  rapid  sales  as  will  main- 
tain quality.  Certain  brands  of  candy  are  in  this 
class.  Candy  must  be  fresh  when  it  reaches  the  con- 
sumer. Retail  stocks  must  be  watched  closely. 
There  could  be  no  certainty  that  it  would  be  always 
fresh  if  all  dealers  indiscriminately  were  allowed  to 
handle  it,  and  if  no  one  representative  dealer  in  a 
neighborhood  had  any  special  inducement  to  cooper- 
ate fully  with  the  manufacturer. 

10.  Installation  and  repair  service. — ^At  times  the 
need  for  continued  assistance  by  the  dealer  after  the 
sale  is  made  dictates  a  policy  of  exclusive  retail  repre- 
sentation. It  may  be  that  technical  knowledge  is  re- 
quired to  instal  the  purchase — as  in  the  case  of  a  heat- 
ing system,  for  example — or  the  dealer  must  carry  a 
stock  of  repair  parts  and  be  prepared  at  all  times  to 
back  up  the  goods  even  after  they  have  been  years  in 
the  consumer's  service — as  in  the  case  of  player 
pianos,  automobile  batteries,  and  many  kinds  of  fac- 
tory equipment.  In  such  cases  the  manufacturer 
may  either  reach  the  consumer  directly  thru  his  own 
branches,  or  distribute  thru  exclusive  or  limited  rep- 
resentatives, who,  because  of  their  responsibility  for 
all  sales  in  a  given  territory,  may  be  expected  to  give 
much  more  time  and  thought  and  capital  to  the  line 
than  they  would  give  if  they  had  no  large  stake  in 
the  success  of  the  manufacturer's  business. 

11.  Exclusive  agencies  and  price  control. — Re- . 
gardless  of  the  apparent  opinion  of  some  courts  to 
the  contrary,  many  a  manufacturer  has  definite  proof 


» 


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{ 


k 


226       MARKETING  AND  MERCHANDISING 

that  his  business  in  a  community  is  hurt  when  com- 
peting dealers  single  out  his  product  as  a  competitive 
weapon  and  thus  inaugurate  an  antagonism  to  the 
line  on  the  part  of  other  dealers.  Selling  to  only  one 
dealer  in  a  community  means  entire  freedom  from 
trouble  of  this  sort.  Court  decisions  may  keep  the 
manufacturer  from  dictating  resale  prices  even  to  his. 
one  dealer  but,  even  if  that  dealer  sells  at  his  own 
figure,  there  will  not  be  the  disruption  of  the  market 
that  often  results  when  competing  dealers  use  an 
advertised  hne  of  goods  as  a  price  leader. 

12.  Value  of  exclusive  agency  for  new  goods. — 
The  exclusive  agency  method  sometimes  seems  to  be 
the  only  possible  way  of  opening  new  territory,  par- 
ticularly for  goods  not  advertised  by  the  manufac- 
turer. A  mere  exclusive  agency  is  not  ordinarily 
sufficient  inducement  by  itself  to  make  a  dealer  take 
it  on.  But  if  the  goods  are  of  real  merit  and  value 
and  if  the  dealer  sees  a  possibility  of  building  up  a 
certain  individuahty  for  his  establishment,  he  may  be 
willing  to  put  his  efforts  behind  the  hne  even  if  it  is 
not  advertised.  This  does  not  mean  that  all  new 
goods  or  all  unadvertised  goods  must  be  marketed  by 
exclusive  agencies.  The  exclusive  agency  may  be  the 
only  possible  plan  for  goods  of  this  class  when  the  in- 
vestment required  is  large  or  when  there  exist  any  of 
the  other  conditions  that  are  normally  associated  with 
the  system  of  exclusive  representation. 

13.  Variations  in  marketing  procedure. — It  is  not 
to  be  understood  that  all  articles  in  the  classifications 


EXCLUSIVE  AGENCIES 


227 


described  in  the  preceding  paragraph  are  sold  only 
thru  exclusive  agencies.  Marketing  procedure  is  not 
so  ironbound  as  to  require  the  application  of  certam 
practices  to  certain  sets  of  conditions.  If  marketing 
could  be  reduced  to  rule  and  regulation  to  this  degree, 
there  would  be  no  opportunity  for  the  exercise  of 
judgment  and  discretion.  Business  has  not  ap- 
proached this  point,  and  it  is  not  likely  that  it  ever 
will.  All  that  can  be  done  as  a  guide  to  the  solution 
of  the  problem  of  exclusive  agencies  is  to  indicate  the 
customary  relation  of  certain  practices  to  specific 
conditions,  to  show  the  value  of  analyzing  both  prac- 
tices and  conditions  for  the  purpose  of  laying  down, 
if  possible,  broad  general  principles,  and  to  provide  a 
starting  point  in  the  form  of  a  brief  catalog  of  experi- 
ences for  the  manufacturer  who  is  facing  the  problem 
of  distribution. 

14.  General  distribution  for  convenience  goods. — 
Most  manufacturers  believe  that  general  distribution 
produces  larger  volume  of  sales  than  restricted  dis- 
tribution. This  is  certainly  true  of  low-priced,  quick- 
selling  necessities.  Most  articles  of  this  sort  may  be 
classed  as  "convenience  goods,"  as  distinguished  from 
"shopping  lines."  Convenience  goods  are  usually 
bought  without  comparison  of  values,  for  example, 
many  small  articles  in  a  grocery  stock,  dry-goods, 
small  items  of  men's  clothing,  drug  sundries,  toilet 
articles,  shelf  hardware,  tobacco,  etc.  A  customer  is 
influenced  to  buy  convenience  goods  at  one  store  in 
preference  to  another  by  ( 1 )  the  convenient  location 


228       MARKETING  AND  MERCHANDISING 


EXCLUSIVE  AGENCIES 


229 


i  # 


1 


H 


of  the  store;  (2)  the  impulse  of  the  moment,  sug- 
gested perhaps  by  the  sight  of  a  desired  article  in  a 
window;  (3)  custom,  which  holds  the  trade  of  a  cus- 
tomer after  it  has  been  once  attracted ;  ( 4 )  the  desire 
to  buy  a  specific  brand  which  is  on  sale  only  in  certain 
stores. 

Convenience  goods  are  best  sold  when  they  are 
handled  by  many  retailers,  because,  if  one  retailer 
does  not  have  them,  the  customer  is  not  likely  to  shop 
around  until  he  finds  them.  Some  one  has  said  that 
"exclusive  articles  require  an  exclusive  agency,  but  an 
article  of  general  use,  with  nothing  exclusive  in  its 
nature  or  appeal,  requires  general  distribution ;  an  ex- 
clusive agency  for  an  article  of  general  demand  is  a 
very  expensive  thing  for  the  manufacturer,  because 
it  invites  substitution."  The  purpose  of  the  adver- 
tising manufacturer  is  partly  to  make  his  goods  of 
universal  consumer  interest ;  every  manufacturer 
would  like  to  have  his  product  as  generally  desired  as 
Ivory  soap.  Different  manufacturers  can  accom- 
plish this  only  to  varying  degrees  but  it  is  certain 
that  the  accomplishment  of- the  purpose  is  hindered 
if  distribution  is  so  thin  as  to  encourage  the  substitu- 
tion of  competing  products. 

15.  Do  conclusive  agencies  push  sales? — Advertised 
lines  are  not  the  only  ones  that  are  normally  best  sold 
without  exclusive  agencies.  Even  outside  of  so-called 
convenience  goods  there  are  many  articles  pushed 
into  general  distribution  by  their  manufacturers,  be- 


cause of  a  belief  that  even  the  passive  distributing 
efforts  of  a  large  number  of  dealers  will  show  a  larger 
sales  volume  than  could  result  from  the  more  active 
support  of  a  few  distributors.  This  attitude  is 
partly  induced  by  a  belief  that  an  exclusive  agency 
does  not  always  buy  the  dealer's  hearty  support. 
Probably  the  belief  is  justified  in  some  cases.  Many 
dealers  handle  too  many  things  to  permit  themselves 
much  time  to  push  particular  lines  of  goods.  On  the 
other  hand,  it  is  unquestioned  that  when  an  agency  is 
properly  placed,  and  when  the  pushing  of  the  exclu- 
sive line  of  goods  is  as  advantageous  to  the  dealer  as 
it  is  to  the  manufacturer,  real  dealer  cooperation  can 
be  expected. 

16.  Why  dealers  like  conclusive  representation. — 
When  a  manufacturer  refuses  to  grant  exclusive 
agencies,  believing  that  general  distribution  will  re- 
sult in  larger  volume  of  sales,  he  must  be  prepared 
to  use  with  dealers  some  other  arguments  than  the 
purely  selfish  one  of  greater  sales  for  himself. 
Speaking  generally,  dealers  like  exclusive  agencies. 
They  like  them  for  many  reasons.  For  example,  the 
thoughtful  dealer  dislikes  cut-throat  price  competition 
as  much  as  the  manufacturer  dislikes  it ;  the  dealer  as 
well  as  the  manufacturer  knows  that  if  he  has  an  ex- 
clusive agency,  price  cutting  is  not  a  form  of  competi- 
tion to  be  feared.  Then,  too,  if  the  manufacturer 
advertises,  the  dealer  likes  to  feel  that  he  alone  in  the 
community  will  reap  the  reward  of  the  advertising. 


1  \i 


ilHi, 

IB' 


230       MARKETING  AND  MERCHANDISING 

Or,  if  the  dealer  himself  advertises  the  goods,  he  does 
not  like  to  feel  that  he  is  simply  building  up  business 
for  Ms  competitor. 

Dealers  in  many  cases  like  their  own  private 
brands.  If  a  dealer  has  an  exclusive  agency,  the 
manufacturer's  brand  becomes  his  own  private  brand 
in  a  limited  sense  as  far  as  his  community  is  con- 
cerned. There  is  real  prestige,  too,  resulting  from  the 
exclusive  handling  of  some  well-known  make  of  cloth- 
ing, pianos  or  filing  cabinets.  The  good  dealer  is  mak- 
ing constant  efforts  to  give  distinction  to  his  estab- 
lishment; an  exclusive  agency  for  standard  goods 
adds  to  -that  distinction.  An  exclusive  agency  for 
one  article  will  bring  to  a  store  people  who  would  not 
otherwise  trade  there.  A  man  may  habitually  buy 
his  cravats,  collars,  and  underwear  at  one  store;  yet 
if  another  store  attracts  him  with  its  offering  of  na- 
tionally advertised  outer  clothing,  it  has  a  chance  to 
win  his  patronage  in  the  "convenience  lines''  as  well. 
Finally,  the  dealer  having  an  exclusive  agency  feels 
that  the  manufacturer  gives  more  careful  attention  to 
his  orders,  complaints,  and  suggestions,  and  in  gen- 
eral values  his  services  more  than  if  the  manufacturer 
had  other  dealers  in  the  community. 

17.  When  general  distribution  is  best  for  retailers. 
— The  natural  bias  of  the  dealer  toward  exclusive 
agencies  is  matched  by  a  natural  bias  of  manufac- 
turers away  from  them.  This  does  not  mean  that  the 
interests  of  dealers  and  manufacturers  are  not  alike. 
One  can  not  permanently  prosper  unless  the  other 


EXCLUSIVE  AGENCIES 


231 


does.  We  have  seen  that  in  many  circumstances  the 
manufacturer  realizes  and  uses  the  power  of  the  ex- 
clusive agency.  When  he  does  not,  believing  that 
exclusive  agencies  would  retard  his  sales,  it  can  usu- 
ally be  proved  that  his  decision  is  best  for  his  dealers 
as  well  as  for  himself.  A  chain  of  New  York  men's 
clothing  stores,  after  having  the  exclusive  sale  of  a 
well-known  brand  of  hosiery  for  several  years,  re- 
ported an  actual  increase  in  their  own  sales  of  this 
hosiery  after  140  other  dealers  in  the  city  had  been 
given  the  right  to  handle  the  same  goods.  Their 
reasoning  was  as  follows : 

If  we  alone  after  hammering  Blank  Hosiery  as  hard  as 
we  possibly  could  for  four  or  five  years  had  been  able  to 
build  up  the  Blank  business  in  New  York,  which  we  were 
doing,  it  was  reasonable  to  suppose  that  100  or  150 
energetic  retailers  plugging  and  pushing  Blank  Hosiery 
would  surely  produce  better  and  quicker  results  than  one 
dealer  pushing  the  product  and  the  others  pounding  be- 
cause they  did  not  carry  it.  It  simply  meant  a  choice  be- 
tween the  150  stores  in  New  York  in  which  a  man  or  woman 
could  be  told  the  merits  of  Blank  Hosiery,  or  only  one  store ; 
one  store  pushing  Blank  and  every  other  store  with  some- 
thing "just  as  good." 

There  is  the  argument  concretely  and  briefly  ex- 
pressed. It  is  a  good  argument  in  many,  many  cases. 
A  dealer's  sales  of  any  one  item  depend  partly  on  his 
own  efforts  to  sell  that  item  but  partly  too  on  the 
number  of  people  who  know  and  want  the  item. 
Even  the  most  extensive  advertising  ever  devised 
could  not  sell  as  many  Arr6w  collars  for  an  exclu- 


232       MARKETING  AND  MERCHANDISING 

sive  dealer  in  a  large  community  as  are  now  sold  for 
him  because  of  the  almost  universal  interest  in  those 
goods.  Does  anybody  suppose  that  a  grocer  with  an 
exclusive  agency  for  Campbell's  soups  could  sell  more 
of  them  than  he  now  sells  with  nearly  every  grocer  in 
the  country  stocking  them  and  pushing  them? 
Would  safety  razors  have  ever  made  a  nation-wide 
market  for  themselves  if  but  one  or  a  few  dealers  in 
a  community  had  had  the  privilege  of  distributing 
them?  For  countless  kinds  of  goods  the  dealer  who 
insists  on  an  exclusive  agency  definitely  limits  his  own 
market  just  as  much  as  he  hmits  the  market  for  the 
manufacturer.  It  is  the  realization  of  this  fact  that 
gives  to  the  manufacturer  seeking  general  distribu- 
tion the  intelligent  cooperation  of  thousands  of  re- 
tailers in  all  lines  of  merchandising. 

18.  Uncertain  tenure  of  exclusive  agencies. — ^A 
final  theoretical  argument  against  the  exclusive 
agency  is  the  unquestioned  fact  that  exclusive  agen- 
cies once  granted  are  not  always  permitted  to  remain 
undisturbed.  If  an  exclusive  distributor  does  not 
give  proper  support,  the  manufacturer  is  justified  in 
finding  one  who  j^oes.  Or,  if  a  market  has  outgrown 
the  conditions  that  made  the  exclusive  agency  neces- 
sary at  first,  who  shall  say  that  a  manufacturer  is  not 
justified  in  abandoning  exclusive  agencies  for  general 
distribution  when  he  believes  that  the  change  will  best 
serve  both  his  dealers  and  himself?  These  contin- 
gencies make  many  thoughtful  dealers  look  askance 
at  exclusive  agencies  and  they  play  into  the  hands  of 


EXCLUSIVE  AGENCIES 


233 


the  manufacturer  who  occasionally  has  to  refuse  a 
demand  that  he  grant  exclusive  representation  for 
his  products. 

19.  The  modern  trend. — Except  in  outstanding 
cases  where  manufacturers  unquestionably  profit 
from  exclusive  agencies,  the  system  of  exclusive  or 
limited  representation,  generally  speaking,  provides 
more  advantages  for  the  dealer  than  for  the  manu- 
facturer ;  and  the  advantages  for  the  dealer  are  often 
not  what  they  were  before  the  days  of  modern  adver- 
tising. The  tendency  seems  to  be  away  from  ex- 
clusive agencies.  The  increasing  use  of  national  ad- 
vertising is  bringing  manufacturers  more  and  more 
to  realize  the  advantages  of  the  widespread  distribu- 
tion which  enables  readers  of  advertising  to  find  ad- 
vertised goods  with  the  least  possible  difiiculty.  The 
growing  interest  of  dealers  in  advertised  goods  is 
leading  them  to  recognize  that  general  selling  effort 
behind  a  line  means  maximum  demand  for  it  and 
maximum  sales  for  everybody. 

REVIEW 

What  is  meant  by  selling  thru  an  exclusive  agency? 

What  advantages  may  be  gained  by  a  manufacturer  in  giving 
a  jobber  exclusive  sale  of  a  product? 

What  is  the  manufacturer's  objection  to  an  exclusive  whole- 
sale agency? 

Discuss  exclusive  agencies  as  applied  to  retail  shopping  lines. 

When  is  it  advisable  or  necessary  to  grant  exclusive  retail 

agencies  ? 

Contrast  the  manufacturer's  attitude  with  regard  to  general 
distribution  with  the  dealer's  attitude  of  exclusive  agencies. 
How  may  they  be  made  to  harmonize? 

What  is  the  modern  tendency  in  regard  to  exclusive  agencies? 


M 


f 


PRIVATE  BRAND  PROBLEM 


235 


IiliiiiiiH 
"  IP 


fipE 


•i 


CHAx  TER  X  V 

THE  PRIVATE  BRAND  PROBLEM 

1.  Importance  of  the  problem. — One  of  the  things 
that  seriously  complicates  the  relations  between  man- 
ufacturers and  distributors  is  that  jobbers  and  re- 
tailers invade  the  field  of  the  manufacturer.  The 
historic  function  of  dealers  is  to  distribute  goods — not 
to  make  them.  Of  late  years  distributors  of  all  classes 
have  in  many  instances  taken  upon  themselves 
many  of  the  manufacturer's  functions.  Probably 
most  distributors  remain  distributors  exclusively  but 
there  are  many  cases  in  which  jobbers  or  retailers 
manufacture  part  of  the  things  they  sell,  or,  by  put- 
ting their  own  names  or  brands  on  goods  made  for 
them,  assume  the  manufacturer's  responsibility  so  far 
as  other  dealers  and  consumers  are  concerned.  The 
manufacturer  seeking  a  wholesale  or  retail  outlet  may 
be  unwilling  to  put  his  product  at  the  mercy  of  a 
distributor  who  pushes  his  own  competing  brand. 
Every  jobber  must  face  the  problem  of  whether  he 
will  act  strictly  as  a  distributor  with  only  the  distrib- 
utor's responsibility,  or  whether  he  will  to  any  extent 
enter  the  manufacturing  field.  The  retailer  has  his 
own  problem  in  connection  with  the  possibility  of  pri- 
vate-branding  any  of  the  merchandi^  he  sells!  and  he 

234 


also  has  the  problem  of  adopting  a  policy  with  re- 
spect to  the  private  brands  of  goods  that  the  jobber 
offers  to  him.     The  consumer's  interest  is  in  price, 
quality,  and  service  only ;  we  shall  see  that  the  private 
brand  controversy  is  by  no  means  alien  to  his  interests. 
2.  Private  brands  that  harm  no  one. — There  are 
certain  cases  of  private  branding  of  goods  by  distrib- 
utors that  do  not  give  rise  to  complications  in  market- 
ing methods.     If  a  business  house  starts  out  as  a 
distributor  and  then  expands  as  a  manufacturer  to 
such  an  extent  as  to  be  able  to  make  all  of  the  articles 
it  sells,  its  position  is  precisely  that  of  the  house  that 
is  primarily  a  manufacturer;  it  may  sell  to  other 
dealers  or  direct  to  consumers.     In  either  case  its 
competitive  position  is  no  different  from  that  of  other 
manufacturers.     Nor  do  any  marketing  complications 
arise  when  a  business  house  manufactures  one  or  more 
lines  of  goods  and  then  handles  other  non-competing 
lines  as  a  jobber  or  retailer.     Some  kinds  of  manu- 
facturing or  semi-manufacturing  have  so  long  been 
a  recognized  function  of  the  wholesale  house  that  no 
question  arises  about  them.     Examples  are  the  can- 
ning of  fruit  and  vegetables  and  the  importing,  sort- 
ing and  packing  of  bulk  goods  such  as  dates,  figs, 
nuts,  etc.     It  is  only  within  recent  years  that  manu- 
facturers or  importers  have  begun  to  confine  their 
operations  to  one  or  more  of  these  lines  and,  by  ad- 
vertising and  doing  business  on  a  national  basis,  have 
threatened  the  traditional  supremacy  of  the  whole- 
sale grocer  in  these  fields. 


I 


•^ 


1 


i 


■ 

i 
i 


236       MARKETING  AND  MERCHANDISING 

8.  Distributors  as  manufacturers'  competitors. — 
The  private  brand  problem  arises  when  the  jobber  or 
retailer,  by  putting  his  own  name  or  brand  on  cer- 
tain goods,  comes  directly  into  conflict  with  similar 
goods  branded  by  the  manufacturer  which  the  manu- 
facturer relies  on  the  jobber  or  retailer  to  distribute, 
The  situation  is  illustrated  by  the  hardware  jobber 
who  handles  many  goods  trade-marked  by  the  manu- 
facturer but  who  also  pushes  similar  competing  goods 
carrying  his  own  label.  It  is  also  illustrated  by  the 
department  store  that  will  sell  goods  with  a  manufac- 
turer's label  only  when  the  consumer  insists  on  it 
and  always  gives  chief  attention  to  the  sale  of  its  own 
privately  branded  merchandise.  The  solicitude  of 
manufacturers  about  entrusting  the  distribution  of 
their  goods  to  dealers  who  push  their  own  competing 
lines  is  by  no  means  confined  to  those  who  advertise. 
It  is  true,  however,  that  national  advertising  has  so 
emphasized  the  importance  of  brand  name  good-will 
that  the  private  brand  problem  has  become  largely  a 
controversy  regarding  manufacturers'  advertised 
brands  versus  dealers'  private  brands. 

4.  Why  manufacturers  deal  with  private  brand  dis- 
tributors.— Many  manufacturers  voice  no  objection 
to  selling  their  goods  thru  jobbers  or  retailers  who 
push  their  own  competing  private  brands.  A  manu- 
facturer  who  is  relatively  new  in  the  field  and  who 
has  not  had  time  to  establish  any  great  amount  of 
good-will  for  his  own  brand  is  often  willing  to  let 
his  goods  run  the  risk  of  competition  with  distrib- 


PRIVATE  BRAND  PROBLEM 


237 


utors'  private  brands,  just  for  the  sake  of  getting  the 
distributor  to  put  them  in  his  price-list  or  on  his 
shelves.  Without  intensive  selling  or  advertising  ef- 
forts of  his  own,  he  can  hope  for  only  scattered  orders 
at  the  best  and  he  may  think  himself  fortunate  to  ob- 
tain any  assistance  from  jobbers  or  retailers.  He 
suffers,  of  course,  from  the  private  brand  competition 
but  he  has  no  recourse  if  he  is  not  in  a  position  to 
create  any  real  interest  in  his  products. 

At  the  other  extreme  is  the  strong  manufacturer 
with  a  nationally  known  product  and  trade  name 
who  fully  realizes  what  he  believes  to  be  the  unfair- 
ness of  private  brand  competition  but  who  so  inten- 
sively cultivates  consumer  good-will  on  his  own  ac- 
count that  private  brand  competition  does  not  seri- 
ously interfere  with  his  market.  Many  of  these 
manufacturers  sell  thru  jobbers  or  retailers  who 
have  their  own  private  brands.  They  may  object  to 
the  private  brand  principle  and  practice  but  they  are 
content  to  utilize  the  established  distributing  ma- 
chinery regardless  of  their  objections  to  some  of  its 

parts. 

5.  Manufacturers  who  make  private  brands. — In 
nearly  every  line  of  business  there  is  a  group  of  manu- 
facturers who  are  willing  to  keep  their  names  in  the 
background  and  who  sell  all  their  output  to  jobbers 
or  retailers  under  the  distributors'  own  labels.  This 
is  sometimes  the  easiest  way  for  a  manufacturer  to 
find  a  quick  and  sure  outlet.  It  involves  the  mini- 
mum of  selling  cost  to  the  manufacturer  and,  by  pro- 


^v 


B 


238       MARKETING  AND  MERCHANDISING 

viding  early  in  the  season  for  capacity  production,  it 
may  reduce  producing  costs  as  well.     The  manufac- 
turer selling  exclusively  in  this  way  runs  certain 
risks.     The  first  is  the  risk  of  losing  his  entire  mar- 
ket or  a  large  part  of  it  over-night.     His  sole  hold 
on  his  customers  is  price  and  quality.     If  there  is 
real  or  expressed  dissatisfaction  with  either,  his  cus- 
tomers can  quickly  switch  to  some  other  source  of 
supply  and  leave  him  to  develop  wholly  new  markets. 
Another  risk  is  that  the  manufacturer  will  "find  him- 
self continually  subjected  to  price  and  service  de- 
mands from  his  customers  until  they  reach  a  point 
where  the  business  is  unprofitable  to  him.     Of  course 
any  manufacturer  runs  both  of  these  risks  but  the 
manufacturer  of  private  brands  for  distributors  en- 
counters them  to  an  unusual  degree. 

There  is  another  type  of  manufacturer  who  ordi- 
narily sells  his  goods  under  his  own  name  and  label, 
but  who  may  have  produced  more  than  his  normal 
market  can  consume,  and  who  finds  himself  with  a 
warehouse  full  of  goods  he  can  not  move.     If  he  can 
find  some  distributor  who  will  take  these  goods  pro- 
vided the  manufacturer's  label  is  removed  and  the 
distributor's  put  m  its  place,  the  manufacturer  con- 
siders the  business  "velvet";  he  gets  trade  he  could 
not  get  otherwise  and  he  does  not  believe  he  is  injur- 
ing himself  by  the  transaction.     Allied  to  him  is  the 
manufacturer  with  but  one  quahty  of  goods,  who 
habituaUy  brands  some  of  them  himself  and  sells  the 
remainder  to  distributors  with  the  distributors'  own 


PRIVATE  BRAND  PROBLEM 


239 


« 

labels  on  them.  Both  of  these  practices  are  common. 
The  arguments  in  favor  of  them  are  obvious  but  they 
are  chiefly  arguments  of  expediency.. 

The  manufacturer  who  will  not  sell  his  goods  with- 
out his  own  name  or  brand  on  them  is  actuated  by 
the  belief  that  his  interests  are  best  served  by  his  re- 
taining responsibility  for  the  quality  and  service  of 
the  goods  all  the  way  -down  to  the  ultimate  consumer. 
Following  this  principle  may  at  times  cause  the  loss  of 
immediate  sales  but  the  idea  of  selling  only  one- 
quality-one-brand  merchandise  has  built  up  many  very 
•large  and  successful  businesses.    Back  of  it  lies  the 
belief  that  the  manufacturer  who  is  trying  to  create 
good-will  for  his  own  brand  ultimately  harms  himself 
if  he  aids  in  putting  on  the  market  other  brands  of 
goods  to  compete  with  those  that  carry  his  own  name. 
Finally;  among  the  manufacturers  who  make  pri- 
vately branded  goods  for  distributors  is  the  type  of 
producer  who  puts  his  own  brand  on  his  first  quality 
goods  but  who  is  willing  to  put  distributors'  labels  on 
his  second  quality  or  factory  damaged  output.     Some 
opponents  of  private  brands  charge  that  most  pri- 
vately branded  goods  are  obtained  in  this  way.     The 
charge  is  not  true.     There  are  countless  lines  bearing 
a  jobber's  or  retailer's  private  brand  that  are  of  just 
as  high  quality  as  any  that  are  branded  and  advertised 
by  a  manufacturer. 

6.  Are  private  brands  unfair'^. — The  manufac- 
turer's criticism  of  the  distributor,  either  jobber  or 
retailer,  who  ostensibly  handles  the  manufacturer's 


■ 

Mill, 

nil 


m 


s. 


■11 


240       MARKETING  AND  MERCHANDISING 

own  branded  goods  and  at  the  same  time  pushes  com- 
peting goods  carrying  his  private  brand,  has  chiefly 
to  do  with  whAt  he  believes  to  be  the  mifairness  of 
the  practice.     There  would  be  no  unfairness  if,  for 
example,  the  wholesale  drug  salesman  should  say: 
"Here  are  a  dozen  different  brands  of  face  cream, 
among  them  our  own;  take  your  choice."     He  sel- 
dom operates  in  this  way.     Usually  he  has  orders  to 
push  the  private  brand  and  he  is  given  a  larger  com- 
mission when  he  does  so.     There  is  no  unfairness  also 
if  the  private  brand  jobber  or  retailer  refuses  to  han- 
dle goods  of  manufacturers  which  compete  with  his- 
private    brands.     Few    distributors'    businesses    are 
however,  conducted  in  this  way.     The  charge  of  un- 
fairness usually  rests  on  the  fact  that  the  jobber  be- 
lieves he  should  be  strongly  supported,  as  a  legitimate 
and  necessary  middleman,  by  the  manufacturer  and 
that  he  then  turns  around  and  competes,  as  a  manu- 
facturer, with  the  manufacturers  whose  support  he 
solicits.     The  private  brand  retailer  stands  in  a  little 
different  position.     Unlike  the  jobber,  he  is  not  so 
continually  fighting  for  his  place  as  a  middleman  and 
he  has  little  need  to  solicit  support  from  the  manu- 
facturer.    It  is  charged,  however,  that  there  is  an 
element  of  unfairness  even  in  his  case  when  he  keeps 
manufacturers'  brands  under  the  counter  and  pushes 
goods  with  his  own  label.     Regardless  of  whether 
these  practices  are  unfair  on  the  part  of  the  jobber 
or  the  retailer,  it  can  not  be  denied  that  they  fre- 
quently cause  the  manufacturer  to  consider  the  pos- 


PRIVATE  BRAND  PROBLEM 


241 


sibility  of  reaching  the  retailer  or  the  consumer  direct. 
7.  The  cost  of  private  brands. — The  manufacturer 
opposed  to  private  brands  points  out  that  the  jobber 
is  in  business  to  serve  the  retailer,  and  the  retailer  to 
serve  the  consumer.     If  retailer  or  consumer  wants 
a  manufacturer's  brand,  the  distributor  who  serves 
him  is  not  giving  true  service  if  he  does  not  provide 
what  is  wanted.     Furthermore  it  is  said  that  the  time 
spent  by  the  distributor  in  pushing  his  own  brand 
when  a  manufacturer's  brand  is  wanted  and  asked 
for  appreciably  increases  the  cost  of  doing  business 
and  makes  for  higher  prices  to  retailer  and  the  con- 
sumer.    This  is  probably  true  m  some  cases  and  not 
true  in  others.    The  individual  jobber  or  retailer  who 
pushes  his  own  private  brands  may  or  may  not  be 
giving  real  service  and  he  may  or  may  not  be  helping 
to  raise  selling  costs  and  selling  prices.    It  depends  on 
the  relative  quality  of  the  goods,  on  the  actual  dealer 
and  consumer  interest  in  the  different  brands  and  on 
many  other  things  that  vary  in  individual  instances. 
One  general  statement  is,  however,  justified.     So  far 
as  the  jobber  is  concerned,  it  can  not  be  denied  that, 
to  the  extent  he  pushes  his  own  brands  in  competition 
with  manufacturers'  brands,  he  is  helping  to  break 
down  the  manufacturer- jobber-retailer  system  of  dis- 
tribution upon  the  continuance  of  which  his  existence 
as  a  j  obber  depends.     Without  any  question  the  push- 
ing of  jobbers'  private  brands  has  induced  many 
manufacturers  to  seek  and  find  direct  contact  with 
retailers  and,  to  a  very  much  less  extent,  retailers' 


242       MARKETING  AND  MERCHANDISING 


PRIVATE  BRAND  PROBLEM 


243 


P> 


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■V 


private  brands  have  encouraged  the  development  of 
manufacturers'  own  retail  outlets.  The  different  de- 
gree of  influence  of  private  brands  on  the  status  of 
jobbers  and  retailers  is  due  partly  to  the  fact  that 
most  manufacturers  must  use  estabhshed  retail  dis- 
tributors whether  they  wish  to  or  not  and  partly  to 
the  fact  that  jobbers  are  much  more  committed  to 
private  brands  than  are  retailers. 

8.  Private  brands  and  profits. — Some  jobbers  and 
retailers  own  their  own  factories  and  actually  manu- 
facture their  private  brand  goods ;  others  order  goods 
with  their  own  labels  on  them  from  independent 
manufacturers;  still  others  buy  package  goods  with- 
out labels  and  attach  their  own  after  the  goods  are  in 
their  warehouses.  In  all  these  cases  the  distributors 
go  before  the  public  as  manufacturers  and  with  the 
responsibility  of  manufacturers.  Probably  the  chief 
purpose  in  every  instance  is  to  make  more  profit.  It 
is  generally  said  that  the  distributor's  private  brands 
cost  him  less  than  similar  brands  that  are  advertised 
by  their  manufacturers.  When  this  is  true,  it  is 
usually  because  the  actual  manufacturer  of  the  pri- 
vate brand  goods  has  a  very  low  selling  cost  or  be- 
cause the  distributor,  if  he  is  a  real  manufacturer, 
charges  himself  at  first  only  with  the  factory  cost  of 
the  goods.  It  has  not  been  proved,  however,  that  the 
entire  cost  of  his  own  private  brands  to  a  distributor 
is  less,  speaking  generally,  than  the  cost  of  manufac- 
turers' brands.  The  selling  cost  must  be  added  to 
the  price  paid  by  the  distributor.     The  distributor, 


and  of  course  the  consumer,  must  pay  the  cost  of 
creating  demand,  regardless  of  whether  that  cost 
is  incurred  partly  by  the  manufacturer  or  entirely  by 
the  distributor. 

9.  The  question  of  quality. — Sometimes  the  pri- 
vate brand  distributor  justifies  his  private  brands  by 
asserting  that  they  have  more  merit  than  goods  bear- 
ing the  manufacturer's  trade-mark.  On  the  other 
hand,  opponents  of  private  brands  have  sometimes 
contended  that  "the  jobber's  sole  purpose  in  putting 
out  private-  brands  is  to  -make  more  money — to  get 
goods  for  the  minimum  price  and  to  sell  for  the  maxi- 
mum; and  consequently  quality  is  likely  to  be  a  sec- 
ondary consideration."  Neither  contention  is  right- 
No  one  has  a  monopoly  on  quality.  The  man  inter- 
ested in  building  a  permanent  business  must  jealously 
guard  quahty,  whether  he  is  a  manufacturer,  jobber 
or  retailer.  Reputable  distributors,  like  reputable 
manufacturers,  are  unwiUing  to  put  their  names  on 
goods  without  satisfactory  merit. 

10.  Private  brands  mean  more  customers. — So  far 
as  the  jobjber  is  concerned,  an  important  reason  for 
private' brands  is  his  belief  that  they  will  bring  him 
new  retail  connections.  If  he  advertises  the  brand 
and  if  the  brand  comes  to  be  demanded  by  consumers, 
his  salesmen  will  have  less  difficulty  in  opening  new 
accounts  than  they  would  have  if  all  they  could  offer 
the  retailer  were  the  same  hues  of  manufacturers* 
goods  that  are  also  offered  by  other  jobbers. 

11.  Jobber  wants  to  control  his  market. — A  final 


»  1 


■ill 

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m 


r  ill 


I 


244       MARKETING  AND  MERCHANDISING 

argument  of  the  private  brand  jobber  is  that  with 
private  brands  he  can  control  his  own  business.  If 
a  jobber's  private  brand  has  proved  satisfactory  to  a 
retailer's  customers  and  is  in  demand  among  them, 
the  retailer  is  not  likely  to  cut  off  his  source  of  sup- 
ply for  those  goods  simply  because  of  friendship  for 
a  salesman  who  has  formerly  sold  them  but  who  has 
gone  over  to  a  rival  jobbing  house.  Furthermore 
because  the  jobber  is  often  the  sole  wholesale  distrib- 
utor of  his  brand,  he  can  dictate  prices  and  profits 
without  interference  by  any  manufacturer;  his  mar- 
ket is  not  likely  to  be  demorahzed  by  price-cutting 
by  other  jobbers,  which  sometimes  does  demoralize 
the  market  for  manufacturers'  nationally  advertised 
goods  that  are  oflFered  by  jobbers  as  leaders. 

12.  The  retailer's  attitude. — The  retail  store  that 
pushes  its  private  brands  as  far  as  it  can  to  the  ex- 
clusion of  manufacturers'  brands  that  it  also  carries, 
wishes  to  build  up  in  the  mind  of  the  consumer  a 
confidence  in  the  store  that  will  result  in  the  maxi- 
mum influence  for  the  store  in  the  community.  This 
is  a  legitimate  ambition.  Every  ambitioys  retailer 
wishes  to  build  a  prestige  which  will  insure  a  maximum 
clientele  of  satisfied  patrons.  It  is  becoming  increas- 
ingly difficult  to  accomplish  this  in  a  reasonable  time 
without  the  aid  of  the  prestige  attaching  to  nationally 
known  brands.  The  great  fluidity  of  population,  the 
increasing  means  of  transportation  and  communica- 
tion, the  extraordinary  growth  of  transient  trade  even 


PRIVATE  BRAND  PROBLEM 


245 


in  small  communities — all  these  things  tend  to  de- 
crease the  opportunity  for  the  individual  store  to 
develop  a  large  and  permanent  following  of  its  own 
by  the  use  of  its  own  name  and  its  own  brands  alone 
and  to  increase  the  opportunity  for  the  retail  store 
to  add  to  its  influence  by  carrying  and  actively  pro- 
moting the  sale  of  nationally  known  goods  whose 
merits  are  estabUshed  in  the  minds  of  consumers 
everywhere.  This  matter  is  considered  at  greater 
length  in  the  following  chapter. 

13.  Should  all  goods  hear  manufacturers'  names'i 
— Some  interests  at  various  times  sought  to  lessen  the 
influence  of  private  brands  if  not  to  eliminate  them 
entirely  by  attempting  to  obtain  legislative  action 
requiring  the  actual  manufacturer's  name  to  appear 
on  every  manufactured  article.  It  is  maintained  that 
this  will  definitely  fix  responsibility  for  the  quality  of 
aU  goods  and  will  tend  to  decrease  the  number  of 
private  brands  because  dealers  will  not  care  to  put 
out  their  own  brands  if  at  the  same  time  they  must 
publish  the  fact  that  they  are  not  in  all  cases  the  actual 
manufacturers. 

It  is  difficult  to  see  how  a  statutory  requirement  of 
this  sort  would  be  beneficial  to  any  one.  Most  peo- 
ple understand  that  many  goods  privately  branded 
by  distributors  are  not  actually  made  by  them.  The 
private  branders  commonly  practice  no  deception. 
It  could  injure  them  but  little  if  the  public  were 
definitely  informed  that  their  private  brands  were 


•   % 


246       MARKETING  AND  MERCHANDISING 

made  by  some  one  else.  If  any  distributor  did  ob- 
ject to  publication  of  this  fact,  it  would  be  easy  to 
print  the  manufacturer's  name  so  inconspicuously 
that  few  customers  would  ascertain  it.  Even  if 
every  consumer  did  know  the  name  of  the  manufac- 
turer of  everything  he  bought,  of  what  good  would 
this  information  be  to  him?  If  anything  goes  wrong 
with  the  purchase,  he  looks  to  the  distributor  if  that 
distributor  has  put  his  name  and  mark  on  it.  The 
consumer  wants  to  know  who  is  responsible  to  him 
for  the  thing  he  buys,  not  necessarily  who  manu- 
factures it. 

It  has  not  been  proved  that  any  legislation  is 
needed  or  desirable  against  private  brands.  Private 
brands  are  not  wrong  in  themselves.  They  are  mat- 
ters of  business  judgment  and  not  business  morals. 
If  there  is  any  public  interest  involved  at  all,  it  has 
to  do  only  with  the  ultimate  and  indirect  results  of 
private  brands  on  the  stability  of  the  present  distrib- 
uting system.  And  if  they  are  to  any  degree  an  in- 
fluence toward  the  elimination  of  the  middleman,  the 
middlemen  themselves  will  certainly  awaken  to  the 
situation  and  take  steps  to  correct  it  long  before  the 
public  at  large  has  any  cause  for  alarm. 


PRIVATE  BRAND  PROBLEM 


247 


Why  do  some  manufacturers  make  private  brands? 
Do  you  believe  the  private  brand  to  be  unfair?     Why? 
Discuss   private   brands   of   jobbers   and   retailers    from   the 
standpoint  of  (a)  profits,  (b)  quality,  (c)  customers,  (d)  mar- 

kcts. 

Why  have  some  retailers  adopted  private  brands? 


!i! 


REVIEW 

Give  some  instances  of  private  branding  by  distributors  which 
do  not  cause  complications  in  methods  of  marketing. 

When  does  the  private  brand  become  a  problem? 

What  is  the  attitude  of  manufacturers  toward  jobbers  or 
retailers  who  have  competing  brands? 


1 


i 


CHAPTER  XVI 

NATIONAL  ADVERTISING  AND  THE  DEALER 

1.  Manufacturers'  interests  in  advertising. — Ad- 
vertising by  the  manufacturer  is  one  of  the  selling 
influences  that  loom  large  in  the  marketing  considera- 
tions of  manufacturer  and  dealer  alike.  When  a 
manufacturer  sells  thru  jobbers  or  direct  to  re- 
tailers, his  decision  to  advertise  or  not  to  advertise 
must  rest  on  a  solution  of  many  problems  involving 
the  interests  of  his  dealers  as  well  as  of  himself.  He 
can  not  properly  reach  a  decision  without  knowing 
the  dealers'  normal  reaction  to  manufacturers'  adver- 
tising. If  he  decides  to  advertise,  he  must  not  only 
have  a  definite  purpose  that  he  expects  his  advertis- 
ing to  achieve  for  him,  but  he  must  also  believe  that 
the  advertising  is  for  the  best  interests  of  all  factors 
concerned  with  the  distribution  of  his  products  and 
be  able  to  prove  it  to  his  dealers.  If  he  does  not 
advertise,  he  should  be  able  to  marshal  sound  argu- 
ments to  meet  the  demands  of  dealers  that  he  do  his 
part  to  create  consumer  interest  in  his  goods  before 
he  seeks  the  cooperation  of  dealers  who  have  many 
things  to  sell  and  who  can  not  take  the  time  to  tell 
consumers  about  his  particular  products.  On  the 
manufacturer's  decision  to  advertise  or  not  to  adver- 
tise will  often  depend  his  selection  of  sales  channels. 

248 


NATIONAL  ADVERTISING  AND  DEALER      249 

It  will  have  a  vital  bearing  on  his  point  of  view 
toward  his  sales  problems,  on  his  relation  to  the 
trade  and  on  his  choice  of  many  methods  that  are 
available    in    the    marketing    of    a    manufacturer's 

goods. 

2'.  Dealers'  interest  in  advertising. — ^Jobbers  and 
retailers  have  no  more  important  problems  than  those 
inyolved  in  a  decision  to  back  or  not  to  back  goods 
advertised  by  the  manufacturer.  Advertising,  per- 
haps more  than  any  other  one  selling  help,  has  brought 
a  realignment  of  dealers'  functions  and  opportuni- 
ties. Is  it  a  good  thing  or  a  bad  thing  for  the  dealer? 
Does  national  advertising  mean  manufacturers'  dom- 
ination of  the  distributing  system?  Is  it  something 
to  fight  against  or  to  work  with?  No  dealer  can 
take  a  neutral  attitude.  He  must  be  for  it  or  against 
it.  Probably  no  other  modern  movement  in  selling 
is  of  so  great  significance  to  manufacturers,  dealers 
and  the  public  alike  as  the  growth  of  national  adver- 
tising. 

3.  What  is  national  advertising?— The  term  na- 
tional advertising  is  conveniently  used  to  refer  to  the 
advertising  of  identified,  trade-marked  goods  by  the 
manufacturer  who  sells  thru  dealers.  The  term 
is  not  accurate.  The  manufacturer  may  advertise 
nationally  and  sell  direct  to  the  consumer.  The  ad- 
vertising may  be  merely  local  or  sectional  instead  of 
national.  Our  arbitrary  use  of  the  term  is  its  com- 
mon use,  however,  and  is  justified  by  the  need  of  a 
simple  and  generally  known  phrase  to  describe  the 


tif 


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II 


I 


N 


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250       MARKETING  AND  MERCHANDISING 

kind  of  manufacturer's  advertising  that  is  the  subject 
of  this  discussion. 

The  problem  of  national  advertising  as  it  affects 
manufacturer  and  dealer  is  not  a  problem  of  package 
goods  versus  bulk  goods.  Advertising  has  firmly 
entrenched  package  goods.  Many  bulk  goods  are 
still  sold  but  in  hues  in  which  packaging  is  possible 
non-advertisers  and  advertisers  alike  generally  use 
the  modem,  cleanly,  convenient  method  of  selling 
goods  in  containers. 

4.  Meaning    of    brand    consciousness.— When    a 
manufacturer   sells   thru   dealers   as   well   as   when 
he  sells  to  consumers  direct,  his  decision  to  advertise 
or  not  to  advertise  will  depend  on  varying  conditions 
that  confront  him.     First,  is  there  any  "brand  con- 
sciousness" in  the  minds  of  consumers?     In  other 
words,  do  the  consumers  to  whom  he  wishes  to  appeal 
ordinarily  buy  his  particular  type  of  product  by 
brand    name?     For    example,    relatively    few   con- 
sumers buy  furniture  by  brand  name.     Automobiles, 
on  the  other  hand,  are  always  bought  by  brand  name. 
Between  these  two  extremes  there  are  all  possible 
shades  of  brand  consciousness.     It  is  almost  impos- 
sible to  name  any  kind  of  market  where  the  conscious- 
ness of  brands  is  entirely  absent.     But  where  this 
consciousness  is  relatively  slight,  the  manufacturer's 
decision  to  advertise  or  not  to  advertise  is  ordinarily 
one  of  expediency  and  not  of  necessity.     If  adver-  . 
tising  has  made  little  progress  in  his  industry,  he  may 
decide  not  to  advertise  and  still  hope,  by  a  policy  of 


NATIONAL  ADVERTISING  AND  DEALER      251 

good  goods  and  fair  dealing,  to  get  a  slow  but  grow- 
ing hearing  from  the  trade  and  to  build  up  a  business 
as  satisfactory  as  that  of  any  of  his  non-advertising 

competitors. 

5.  Building  favorable  public  opinion. — If,  in  an 
industry  that  is  largely  on  a  non-advertising  basis, 
he  decides  to  advertise,  he  is  actuated  chiefly  by  a 
determination  to  build  up  a  favorable  pubHc  opinion 
for  his  goods  in  the  minds  of  both  consumers  and 
dealers,     He  knows  that  without  quality  in  his  prod- 
uct and  fairness  in  his  policies  he  can  never  build  a 
large  or  permanent  business  but  he  knows,  too,  that 
if  he  does  build  his  business  on  quality  and  fair  deal- 
ing he  can  build  faster  and  farther  with  advertising 
than  without  it.     If  he  alone  in  an  industry  is  teach- 
ing consumers  to  consider  the  name  behind  the  prod- 
uct his  task  will  be  harder  than  if  he  had  assistance 
from  other  manufacturers  but  his  leadership  will  be 
all  the  more  assured  when  he  does  succeed  in  getting 
people  to  think  and  talk  of  Uneeda  biscuit,  for  ex- 
ample, instead  of  plain  soda  crackers. 

6.  When  consumers  buy  by  brand.— In  an  indus- 
try in  which  consumers  buy  usually  by  brand  name, 
advertising  is  often  necessary  if  the  manufacturer 
hopes  to  become  a  real  factor.  For  example,  safety 
razors,  soap,  tooth  paste  and  package  breakfast  foods 
are  almost  always  purchased  by  brand.  A  non- 
advertising  manufacturer  in  any  of  these  fields  could 
scarcely  expect  to  develop  his  business  to  a  position 
of  leadership.     Of  course  he  can  do  some  business 


llllllJillai 


Milk 

m 


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Bi 


h. 


252       MARKETING  AND  MERCHANDISING 

without  advertising  but  he  will  find  his  progress  slow 
and  his  opportunities  for  development  relatively 
small.  If  he  wishes  to  create  for  his  own  goods  the 
same  favorable  public  opinion  that  his  competitors 
have  created  for  theirs  he  must  begin  to  advertise. 

7.  Word'of -mouth  advertising. — In  certain  indus- 
tries where  there  is  practically  universal  buying  by 
brand,  the  manufacturer  may  occasionally  hope  to 
attain  leadership  even  without  the  sort  of  publicity 
that  we  usually  mean  when  we  speak  of  advertising. 
Golf  balls  are  a  case  in  point.  Golf  balls  are  made 
and  consumed  in  tremendous  quantities  in  America; 
there  are  certain  well  estabhshed  leaders;  and  yet 
there  is  a  relatively  small  amount  of  printed  adver- 
tising.  In  this  field  the  influence  of  the  professional 
is  so  great  that  many  manufacturers  are  content  to 
obtain  his  cooperation  instead  of  carrying  their  printed 
story  to  the  consumers.  Furthermore  golf  balls,  golf 
clubs  and  all  other  kinds  of  golf  equipment  obtain  a 
very  large  amount  of  word-of-mouth  advertising  from 
players.  The  news  of  a  good  ball  travels  fast.  In 
industries  where  conditions  similar  to  these  exist,  ad- 
vertising is  not  always  essential  to  large  success. 

Probably  no  other  commodity  is  so  largely  sold 
by  the  manufacturer's  name  as  the  automobile. 
There  is  no  such  thing  as  an  unbranded  automobile. 
Yet  not  all  automobiles  are  largely  advertised.  As 
is  the  case  with  golf  balls,  the  good  car  is  largely  its 
own  advertisement ;  its  merits  are  the  subject  of  every- 


NATIONAL  ADVERTISING  AND  DEALER      253 

day  conversation.  One  low-priced  car  in  its  partic- 
ular class  has  obtained  virtually  a  monopoly.  When 
such  a  point  is  reached,  advertising  is  necessary  only 
in  case  the  manufacturer  wishes  to  use  all  possible 
means  to  insure  his  continued  place  in  popular  favor 
and  to  overcome  the  sort  of  active  antagomsm  and 
prejudice  that  any  large  success  always  causes.  De- 
spite the  unusual  amount  of  free  pubhcity  that  exists 
in  the  automobile  field,  it  is  noteworthy  that  with  a 
very  few  exceptions  the  outstanding  leaders  are 
largely  advertised  and  that  the  unadvertised  car,  un- 
less it  possesses  exclusive  and  desirable  features  to  an 
extreme  degree,  is  likely  to  have  but  a  limited  and 

lor*$)  1  ^fi  le 

8    Why  the  manufacturer  advertises.— Tiesipite  the 
real    opportunity    for    considerable    sales    without 
printed  advertising  in  fields,  such  as  the  golf  ball  and 
automobile  industries,  where  novelty,  monopoly,  and 
universal  public  interest  in  the  commodity  itself  are 
active  forces  in  building  brand  consciousness  and 
favorable  pubhc   opinion,  many   manufacturers   in 
these  fields  have  advertised  and  many  more  will  ad- 
vertise in  the  future.     Their  purpose  is  to  add  adver- 
tising to  the  other  forces  working  in  their  favor,  m 
order  to  hasten  the  formation  of  favorable  opinion, 
■    to  add  to  their  competitive  advantage,  to  control  the 
market-that  is,  to  be  sure  of  sales-thru  consumer 
interest,  regardless  of  antagonism  or  indifference  ot 
dealers,  and,  by  increased  sales  without  proportion- 


■ 


If 


254        MARKETING  AND  MERCHANDISING 

ately  increased  selling  costs,  to  get  the  advantage  of 
the  lowered  costs  in  large-scale  production  and  to 
reduce  the  unit  selling  cost. 

The  same  reasons  often  dictate  a  policy  of  adver- 
tising  in  fields  where  brand  consciousness  is  only 
partly  established— pianos  and  shoes,  for  example. 
There  are  largely  successful  non-advertising  manu- 
facturers in  these  and  many  other  fields  doing  busi- 
ness alongside  advertising  manufacturers  of  compet- 
ing products.     With  the  marked  increase  in  consumer 
interest  in  advertised  lines,  however,  the  non-adver- 
tiser is  likely  to  find  himself  in  an  increasingly  diffi- 
cult position.     He  can  always  build  a  business  of  a 
sort  on  a  price  basis  alone.     Even  with  high  prices, 
by  giving  value  and  service,  he  can  slowly  build  a 
real  consumer  following  without  advertising.     And, 
when  the  value  of  the  unit  sale  is  relatively  large 
and  when  the  influence  of  the  dealer  on  the  consumer's 
purchase  is  proportionately  great,  unadvertised  lines 
may  even  dominate  the  market.     It  is  business  his- 
tory that  in  almost  countless  fields  where  the  non- 
advertiser  has  formerly  controlled  the  situation,  one 
or  more  manufacturers  with  vision  and  courage,  by 
bringing  to  their  aid  the  great  power  of  advertising, 
have  rapidly  achieved  places  of  leadership  in  which 
they  have  been  able  to  set  the  pace  for  all  competitors. 

9.  Is  there  a  limit  to  advertising  possibilities? — 
Three  considerations  are  sometimes  theoretically 
urged  as  opposed  to  successful  advertising  by  the 
manufacturer.     One  is  the  nature  of  certain  products. 


NATIONAL  ADVERTISING  AND  DEALER      255 


'I  , 


When  the  consumer  buys  only  on  the  basis  of  care- 
ful laboratory  and  other  tests  of  various  competing 
products,  it  is  sometimes  thought  that  advertising 
can  be  of  little  help.     Belting  for  power  transmis- 
sion is  usually  bought  in  this  way— and  yet  many 
brands  of  belts  are  profitably  advertised.     When  the 
influence  of  the  dealer  on  consumers'  purchases  is 
particularly  strong,  it  has  been  said  that  manufac- 
turers' advertising  is  relatively  ineffective.     The  shoe 
repairman  can  often  use  any  good  quality  rubber  heel 
that  he  chooses  yet  many  large-selling  brands  of  rub- 
ber heels  owe  their  satisfactory  position  in  the  trade 
in  a  large  measure  to  advertising.     Finally,  when 
the  market  is  thin — ^when  the  number  of  consumers 
is  comparatively  small — ^many  manufacturers  hesi- 
tate to  use  consumer  advertising.     The  number  of 
people  in  every  hundred  or  thousand  who  might  buy 
a  bookkeeping  machine  is  small  yet  bookkeeping 
machines  are  largely  and  profitably  advertised  in 
mediums  of  general  circulation.     The  power  of  manu- 
facturers' advertising  is  so  great  and  its  possibilities 
as  yet  so  little  developed  that  no  one  can  safely  say 
that  any  product  or  industry  is  barred  from  its  help- 
ful influence.     Every  manufacturer  in  every  field 
must  give  it  consideration  as  a  possible  aid  in  his 
selling  if  he  seeks  a  dominant  position  for  himself  and 

his  products. 

10.  What  advertised  goods  do  for  the  dealer.— The 
manufacturer  who  backs  his  goods  with  advertising 
believes  he  is  entitled  to  the  cooperation  of  jobbers 


256       MARKETING  AND  MERCHANDISING 

and  retailers.  He  maintains  that  the  dealer  who 
handles  his  goods  is  directly  benefiting  himself  and 
that  the  growth  of  national  advertising  means  more 
satisfaction  for  consumers,  more  profit  for  dealers 
and  more  stable  and  satisfactory  business  conditions 
for  all. 

11.  Advertising  and  quality.— It  is  maintained  that 
advertised  goods  are  of  known  and  stable  quality. 
The  consumer  has  confidence  in  them ;  he  knows  what 
he  is  getting.     Past  experience  with  the  goods  has 
familiarized  him  with  them,  and  he  can  buy  quickly, 
conveniently  and  confidently  by  name.     The  quality 
must  be  satisfactory,  because  the  manufacturer  who 
puts  his  name  on  the  goods  and  spends  money  to 
advertise  them  can  not  afford  to  run  the  risk  of  con- 
sumer dissatisfaction.     The  consumer  who  has  tried 
the  goods  and  found  them  right  purchases  them  again 
and  again  with  confidence  and  renewed  satisfaction. 
The  handling  of  goods  of  this  character  is  particu- 
larly advantageous  in  a  store's  appeal  for  new  trade. 
A  transient  or  newcomer  in  a  community  who  has 
worn  a  certain  brand  of  clothing,  for  example,  does 
not  hesitate  to  deal  with  a  strange  store  that  handles 
the  same  brand.     A  store  that  deals  in  well-known 
goods,  thereby  establishes  itself  in  the  public  mind 
as  a  reliable,  reputable  establishment.     A  trade  paper 
has  said: 

The  retailer  who  ignores  the  powerful  influence  of  adver- 
tising is  completely  out  of  tune.  That  advertising  has 
brought  about  a  stable  condition  in  buying  and  selling  is 


NATIONAL  ADVERTISING  AND  DEALER     257 

evident  at  every  turn.  Whether  it  be  an  incubator,  a 
thresher,  a  breakfast  food,  a  collar,  or  a  cigar — people  want 
to  buy  and  duplicate  by  name.  They  don't  want  nameless 
unknowns. 

12.  What  the  opposition  says. — In  opposition,  it 
is  contended  that  advertised  goods  have  no  monopoly 
of  quality  or  of  public  favor.  There  is  an  occasional 
non-advertiser  whose  goods  are  generally  known  to 
the  public  but  they  are  few  indeed  as  compared  with 
advertising  manufacturers.  It  is  also  said  that  the 
handling  of  advertised  goods  is  not  the  chief  thing  in 
establishing  the  good  reputation  of  a  store.  This  is 
true.  When  the  people  of  a  community  have  had  an 
opportunity  to  observe  the  conduct  of  a  store  for  a 
considerable  time,  it  will  have  an  established  trade 
regardless  of  the  names  on  the  goods  that  it  carries. 

13.  Effect  on  sales  volume. — A  trade  paper  has 
quoted  a  store  owner  as  follows : 

Three  years  ago  I  sold  $700,000  annually.  Today  I 
am  selling  $1,000,000.  Part  of  this,  not  all  of  it,  is  due  to 
the  fact  that  I  sell  and  advertise  Blank's  clothing.  My 
name  on  my  store  in  my  town  is  worth  a  lot  more  than 
theirs;  I  could  sell  it  for  $250,000.  But  their  name  on 
their  clothes  is  worth  a  lot  more  than  mine.  My  customers 
know  I  do  not  make  clothes,  and  the  name  of  Blank  on  the 
clothes  answers  every  question  any  man  might  be  inclined 
to  ask.  The  combinaton  of  my  name  on  my  store  and 
their  name  on  my  clothes  in  my  town  can  not  be  beaten. 

The  controversy  between  manufacturers'  brands 
and  private  brands  has  been  covered  in  the  preceding 


,  I 


tjimmM 


n 


f 


258       MARKETING  AND  MERCHANDISING 

chapter.  It  only  remains  to  emphasize  the  fact  that 
nationally  advertised  lines  are  rapidly  making  their 
place  in  a  constantly  growing  number  of  fields,  and 
that  no  dealer,  regardless  of  his  size  or  prestige,  can 
afford  entirely  to  ignore  them  as  possible  aids  in  the 
development  of  his  own  business. 

More  sales,  it  is  said,  can  be  made  of  advertised 
than  of  non-advertised  goods.  People  are  attracted 
to  a  store  to  buy  advertised  goods  not  only  by  the 
dealer's  advertising,  but  also  by  the  manufacturer's 
advertising.  Imagine  two  stores  in  a  town  in  the 
same  line  of  business,  both  of  them  operated  with 
equal  intelligence  and  ability  and  both  equally  prom- 
inent and  known  with  equal  favor  to  the  public. 
If  one  handles  nationally  advertised  goods  and  the 
other  does  not,  it  is  fair  to  assume  the  former  would 
do  the  larger  business,  simply  because  it  would  have 
two  forces  working  for  it,  while  the  other  would  be 
relying  alone  on  its  own  efforts. 

14.  Lowered  selling  cost. — Nationally  advertised 
articles  can  be  sold  more  quickly  and  easily  than  non- 
advertised  goods.  The  customer  who  asks  for  a  defi- 
nite kind  of  shaving  soap,  or  tooth  brush,  or  cigarettes, 
knows  exactly  what  he  wants;  the  salesperson  has 
only  to  wrap  it  up  and  hand  it  over  the  counter;  he 
need  spend  no  time  convincing  the  customer  of  the 
merits  of  the  article.  A  test  in  a  popular  drug  store 
in  Ntew  York  proved  that  during  the  rush  hour  one 
clerk  made  as  high  as  eighty-nine  sales  in  sixty  min- 
utes.    This  was  possible  only  because  the  customers 


iu 


NATIONAL  ADVERTISING  AND  DEALER      259 

knew  what  they  wanted  and  asked  for  it  by  name. 
The  time  spent  in  making  sales  is  a  big  item  of  store 
expense,  and  progressive  stores  are  trying  to  find 
ways  of  helping  salespeople  to  ehminate  waste  mo- 
tions, waste  steps  and  waste  minutes.  It  is  certain 
that  the  selling  of  well-known  standard  goods  can 
be  accomplished  in  less  time  and  with  less  expense 
than  the  selling  of  unknown  brands. 

15.  Quicker  sales  and  more  turnover. — If  nation- 
ally advertised  goods  can  be  sold  more  quickly  and 
with  less  expense  than  others  and  if  there  is  more  con- 
sumer interest  in  them,  their  sale  should  result  in 
more  turnovers  of  capital  and  larger  profits.  This 
should  be  true  even  if  the  gross  profit  on  each  sale 
of  the  advertised  brand  is  less  than  on  each  sale  of 
the  non-advertised  brand.  Imagine  two  similar  ar- 
ticles, one  advertised  and  the  other  not  advertised. 
Each  is  sold  to  the  consumer  for  ten  cents.  On  the 
former  the  dealer  gets  a  gross  profit  of  two  and  one- 
half  cents;  on  the  latter,  of  five  cents.  Assume  there 
is  real  demand  for  the  advertised  line  and  that  the 
dealer  can  sell  one  hundred  units  of  it  during  the  same 
time  it  takes  him  to  sell  twenty-five  of  the  other. 
His  gross  profit  on  the  advertised  brand  would  be 
$2.50;  on  the  non-advertised  brand,  $1.25.  This  is 
not  an  impossible  or  miique  situation.  It  should  be 
remembered,  too,  that  additional  profit  in  advertised 
goods  hes  in  the  time  saved  in  waiting  on  customers. 
A  final  source  of  extra  profit  lies  in  the  fact  that 
nationally  advertised  goods  are  usually  more  staple 


i\ 


m 


260        MARKETING  AND  MERCHANDISING 

than  others ;  at  the  end  of  a  season  they  can  often  be 
cleared  out  of  stock  with  a  smaller  price  reduction 
than  is  needed  to  move  less  staple  articles. 

16.  The  question  of  profits.— When  jobbers  and 
retailers  oppose  the  handling  of  nationally  advertised 
goods,  it  is  usually  on  the  score  of  higher  cost  and 
less  profit.  They  either  deny  or  do  not  understand 
the  sources  of  added  profit  outlined  in  the  preceding 
paragraph.  It  has  not  been  proved,  speaking  gen- 
erally, that  the  gross  profit  on  advertised  lines  is  less 
than  on  competing  unadvertised  lines.  In  a  competi- 
tive field,  manufacturers  normally  must  pay  their 
wholesale  and  retail  distributors  about  the  same 
amount,  regardless  of  whether  the  goods  are  or  are 
not  advertised.  Some  non-advertising  manufac- 
turers allow  greater  dealer  discounts  than  their  adver- 
tising competitors.  Often  this  is  because  the  non- 
advertiser  realizes  the  weakness  of  his  position  and 
offers  an  extra  discount  to  the  dealer  with  the  knowl- 
edge that  in  no  other  way  can  he  arouse  his  interest 
in  the  goods.  In  such  cases  the  dealer  is  paid  an 
extra  amount  to  do  for  the  manufacturer's  goods 
what  the  advertising  manufacturer  does  for  his  own 

goods. 

Occasionally  discounts  on  advertised  lines  are  be- 
low the  average  for  other  products  of  the  same  type. 
In  fixing  the  discount  the  manufacturer  must  have 
due  regard  for  the  actual  consumer  demand  for  his 
goods  and  for  the  frequency  with  which  the  dealer 
can  turn  his  investment  in  them.     In  practically 


NATIONAL  ADVERTISING  AND  DEALER      261 

every  case  the  dealer's  profit  on  each  sale  is  suffi- 
cient to  net  him  a  satisfactory  return  on  his  invest- 
ment when  ease  of  selhng  and  frequency  of  turn- 
over are  considered.  If  an  advertising  manufacturer 
gives  a  discount  which  is  actually  too  low  to  be  profit- 
able to  dealers,  he  can  not  expect  cooperation  and  he 
is  likely  to  find  that  the  justifiable  antagonism  of 
dealers  will  counteract  the  good  results  from  his 
advertising.  Few  manufacturers  are  today  so  short- 
sighted as  to  place  themselves  in  this  position. 

17.  Present  attitude  toward  national  advertising. 
—Nowadays  there  is  little  dealer  antagonism  to  na- 
tionally advertised  goods.     Chain  stores,  mail-order 
houses  and  very  large  department  stores  are  some- 
times committed  to  their  own  private  brands  and  re- 
fuse to  handle  goods  advertised  by  manufacturers. 
This  is  less  frequently  the  case  than  formerly.     Most 
smaller  retailers,  many  of  the  larger  ones  and  nearly 
all  wholesalers   are   coming  to   realize   that   goods 
backed  strongly  by  the  manufacturer's  advertising 
are  real  business  and  profit  builders  and  that  the 
merchant  runs  not  the  slightest  danger  of  losing  his 
identity  or  of  becoming  a  mere  machine  if  he  accepts 
the  assistance  of  the  manufacturer  in  his  endeavor  to 
build  up  a  reputation  as  a  high-grade  dealer  handhng 
standard  merchandise  of  known  value. 

18.  Consumer  demand.— Probably  much  of  the 
past  misunderstanding,  where  it  has  existed,  between 
advertising  manufacturers  and  their  distributors  is 
due  to  the  use  of  the  phrase  "consumer  demand." 


f 


1^ 


ill 


{i 


ii 


262       MARKETING  AND  MERCHANDISING 

For  a  long  time  advertising  was  thought  of  as  a 
force  which  worked  on  the  dealer.  It  is  true  that 
advertising  sometimes  does  work  in  this  way.  The 
drug  clerk  who  made  eighty-nine  individual  sales  in 
sixty  minutes  could  not  have  done  so  unless  there  was 
a  very  real  consumer  demand  for  the  articles  that 
he  handed  out  in  his  hurried  hour.  Advertising  was 
a  force  which  actually  worked  on  him — very  much  to 
his  own  profit  and  that  of  his  employer.  But  this 
is  not  the  way  most  advertising  works.  Usually  it 
works  for  the  dealer  rather  than  on  him;  it  creates  an 
attitude  of  consumer  acceptance  instead  of  consumer 
demand. 

19.  Consumer  acceptance. — In  the  case  of  rela- 
tively low-priced  articles,  there  is  not  enough  profit 
in  each  sale  to  justify  the  dealer  in  spending  time 
to  influence  the  customer  in  his  buying;  the  dealer  is 
glad  to  have  the  manufacturer  do  all  the  actual  sell- 
ing for  him.  In  the  sale  of  higher  priced  goods,  the 
customer  buys  less  mechanically  and  he  needs  and 
welcomes  the  dealer's  help  and  suggestions.  The 
dealer  must  use  real  salesmanship  in  Idling  elothing, 
typewriters,  fountain  pens,  shoes,  watches,  kitchen 
cabinets  and  many  other  advertised  products.  In 
cases  of  this  sort  the  function  of  advertising  is  to 
help  the  dealer  to  break  down  the  buyer's  resistance 
— ^to  create  a  favorable  public  opinion  for  the*  product 
so  that  some  part  of  the  dealer's  work  of  selling  will 
be  done  for  him  by  the  manufacturer — to  create  an 
attitude  of  mind  on  the  part  of  the  consumer  so 


NATIONAL  ADVERTISING  AND  DEALER      263 


that,  when  the  dealer  points  out  the  well-known  name 
and  label  to  him,  he  will  have  added  confidence  in  the 
dealer's  statements,  his  mind  will  jump  a  long  way 
toward  a  decision  to  buy  and  the  time  required 
to  make  the  sale  will  be  materially  shortened.  This 
attitude  of  mind  is  called  consumer  acceptance.  The 
manufacturer's  advertising  that  brought  it  about  was 
something  that  worked  jor  the  dealer  rather  than  on 
him. 

National  advertising  does  different  things  for  dif- 
ferent manufacturers.  The  creating  of  real  con- 
sumer demand  is  a  legitimate  function  of  advertis- 
ing, and  where  it  is  possible  to  create  such  demand 
the  dealer  profits  just  as  much  as  the  manufacturer. 
But  the  creating  of  consumer  acceptance  is  a  much 
more  frequent  and  more  attainable  goal  for  the  ad- 
vertising manufacturer.  If  it  were  generally  under- 
stood that  in  very  many  cases  the  manufacturer 
uses  advertising  not  as  a  force  to  work  on  the  dealer 
but  as  a  sales  aid  to  work  for  the  dealer,  there  would 
be  less  misunderstanding  between  manufacturers  and 
distributors,  and  dealers  would  more  generally  rea- 
lize the  value  of  tying  up  their  own  sales  efforts  to 
the  favorable  public  opinion  created  by  the  advertis- 
ing of  the  manufacturer. 


REVIEW 

What  decision  must  a  manufacturer  make  regarding  advertis- 
ing?    Upon  what  considerations  must  this  decision  be  based? 
Discuss  brand  consciousness. 
What  is  the  value  to  the  manufacturer  of  advertising  (a)   an 


■ 


.  I 


i 


i 


264        MARKETING  AND  MERCHANDISING 

mrticle  already  in  public  favor,  (b)   an  article  in  which  brand 
consciousness  is  only  slightly  established? 

What  benefit  does  the  manufacturer  believe  the  retailer  se- 
cures from  the  manufacturer's  advertising? 

What  arguments  are  advanced  for  and  against  advertised 
goods? 

What  effect  has  nationally  advertised  goods  upon  sales? 

On  what  grounds  do  dealers  and  retailers  oppose  nationally 
advertised  goods? 

What  is  the  attitude  of  dealers  at  present  toward  nationally 
advertised  goods? 


CHAPTER  XVII 


PRICE  POLICIES 


1.  Importance  of  right  prices. — One  of  the  major 
problems  of  marketing  and  merchandising  is  the  de- 
termination of  suitable  selling  prices.  Prices  that  are 
too  low  will  wreck  the  business.  Prices  that  are  toa 
high  handicap  sales.  Prices  that  are  just  right  will 
produce  maximum  profits  consistent  with  maximum 
sales.  All  prices  must  conform  ultimately  to  the 
economic  law  of  supply  and  demand  but  the  law  of 
supply  and  demand  does  not  work  quickly.  It  can 
seldom  be  invoked  to  help  a  manufacturer  fix  his 
prices  for  a  new  product  going  to  a  new  market. 
Because  the  economic  law  makes  itself  felt  only  after 
operations  have  been  extended  over  a  considerable 
period,  the  manufacturer  must  have  something  more 
tangible  to  aid  him  in  deciding  his  price  problems. 

2.  Influence  of  cost  of  production. — A  manufac- 
turer's selling  price  must  include  three  elements. 
First  it  must  cover  the  cost  of  production.  The  unit 
cost  to  manufacture  is  usually  at  a  minimum  when 
the  factory  can  realize  the  advantages  of  large-scale 
production  and  when  the  plant  is  running  at  full 
capacity.  A  low  selling  price  may  actually  prove 
more  profitable  than  a  higher  one  that  restricts  sales 

265 


i 


f 


266       MARKETING  AND  MERCHANDISING 

and  limits  the  opportunities  for  maximum  manufac- 
turing efficiency. 

3.  Effect  of  selling  costs. — The  selling  price  must 
also  include  the  expense  of  selling.  Many  people 
unfamiliar  with  business  are  inclined  to  believe  that 
any  price  over  and  above  the  actual  manufacturing 
costs  is  clear  profit.  In  our  social  and  industrial 
system,  selling  cost  is  just  as  legitimate  a  charge 
against  selling  price  as  is  production  cost.  Goods 
are  worthless  unless  they  are  available  to  the  con- 
sumer when  he  wants  them.  The  creating  of  place 
and  time  utihty  is  frequently  as  expensive  as  the 
creating  of  form  utility.  In  countless  cases  of  rela- 
tively low-priced  products  the  cost  to  sell  is  as  great 
as  the  cost  to  make,  and  in  some  cases  it  is  even 
greater. 

4.  Size  of  the  profit. — The  final  factor  in  selling 
price  is  net  profit.  After  all  direct  and  indirect 
manufacturing  and  selling  costs,  including  overhead, 
have  been  cared  for,  there  must  be  in  addition  a  net 
profit  sufiicient  to  recompense  the  manufacturer  for 
the  risk  he  has  taken  in  engaging  in  the  business  and 
to  return  an  adequate  interest  on  the  invested  capital. 
Normal  interest  on  capital  is  not  sufficient.  If  an 
amount  above  this  could  not  be  realized,  it  would  be 
more  profitable  for  the  manufacturer  to  invest  his 
funds  in  safe  securities  rather  than  to  run  the  constant 
risk  of  loss  involved  in  most  manufacturing  opera- 
tions. Manufacturing  and  selling  costs  are  known 
values  or,  in  the  case  of  a  new  business,  they  can  be 


PRICE  POLICIES 


267 


approximately  estimated.  There  is  no  problem  in 
fixing  a  selling  price  large  enough  to  include  them. 
The  variable  element  is  net  profit.  Whether  to  make 
this  large  or  small  is  the  chief  part  of  the  price  prob- 
lem. 

5.  "All  the  traffic  will  bear." — A  patent  is  an  offi- 
cial, legally  encouraged  monopoly.     The  seUing  price 
of  a  patented  article  is  theoretically  a  monopoly  price. 
Because  there  can  be  nothing  else  just  like  it  on 
the  market,  a  patented  article  may  literally  be  priced 
at  a  figure  that  represents  "all  the  traffic  will  bear." 
Occasionally  such  a  situation  actually  exists.     The 
first  sewing  machine,  the  first  automobile,  the  first 
vacuum  cleaner  were  real  monopolies.     In  fixing  sell- 
ing prices  for  goods  in  the  monopoly  field,  the  manu- 
facturer's net  profit  is  an  exceedingly  elastic  price 
element.     Its  size  will  depend  chiefly  on  what  the 
purchasers  can  be  induced  to  pay.     The  first  thing 
to  consider  is  the  service  rendered.     The  first  player- 
piano  sold  at  a  high  price,  with  a  large  net  profit,  be- 
cause the  purchaser  was  willing  to  pay  a  high  price 
for  a  service  of  great  value.     A  patented  kitchen 
utensil,  on  the  other  hand,  will  not  be  sold  in  large 
quantities  if  the  manufacturer  makes  the  mistake  of 
trying  to  get  a  price  out  of  proportion  to  the  value 
placed  by  the  purchaser  upon  the  product.     A  second 
consideration  is  the  purchasing  power  of  the  market. 
A  patented  breakfast  food,  going  into  the  homes  of 
the  masses,  must  be  priced  low  enough  to  produce 
large  sales,  while  a  patented  lighting  device  that  will 


k 


268       MARKETING  AND  MERCHANDISING 

go  only  into  the  homes  of  the  well-to-do  may  carry  a 
price  that  permits  a  large  net  profit  on  each  unit  sale. 

6.  Influence  of  competition. — Altho  the  granting 
of  a  patent  is  the  legal  granting  of  a  monopoly, 
actually  few  patented  articles  can  be  sold  at  high 
monopoly  prices.  In  common  with  unpatented 
goods,  products  that  are  patented  are  usually  in 
competition  with  many  other  things  which,  while 
not  exactly  similar,  are  sufficiently  alike  in  purpose 
and  in  service  to  make  the  influence  of  competition 
the  chief  factor  in  price  fixing.  Occasionally  a 
manufacturer  in  a  competitive  field  consciously  fixes 
Ms  prices  on  a  "cost  plus"  basis— manufacturing  cost 
added  to  selling  cost  plus  a  predetermined  and  defi- 
nitely fixed  net  profit.  This  procedure  is  unusual. 
Commonly  a  manufacturer  has  his  price  fixed  for  him 
before  he  starts  to  manufacture.  If  consumers  are 
accustomed  to  paying  a  certain  price  or  a  certain 
range  of  prices  for  the  sort  of  thing  he  contemplates 
making,  he  can  not  expect  to  get  for  his  own  product 
a  price  greatly  out  of  line  with  the  general  market. 
If  competition  has  fixed  his  price  for  him,  his  problem 
is  to  get  his  manufacturing  and  selling  costs  low 
enough  to  leave  a  margin  of  net  profit  adequate  to 
compensate  for  his  risk  and  for  the  capital  invested 
in  the  business.  Price,  then,  is  usually  dependent 
on  competition — ^which  is  another  way  of  saying  that 
no  individual  product  is  exempt  from  the  operation  of 
the  economic  law  of  supply  and  demand. 

7.  Advantage  of  definite  prices. — It  is  scarcely 


PRICE  POLICIES 


269 


necessary  to  discuss  the  relative  advantages  of  definite 
and  indefinite  selling  prices.     Nearly  every  manu- 
facturer has  prices  that  are  at  least  fairly  well  fixed 
but  this  was  not  always  so.     Sliding  scales  of  prices 
were  formerly  the  rule  rather  than  the  exception  in 
many  industries.     Buying  was  largely  a  matter  of 
price  bargaining,  and  salesmen  were  expected  to  get 
as  much  as  they  could  above  a  certain  fixed  minimum. 
Some  industries  still  operate  on  this  basis,  just  as 
some  retail  stores  still  mark  selling  prices  in  cabalis- 
tic figures  designed  merely  to  keep  the  salesmen  from 
getting  too  little  for  the  goods.     Both  practices  are 
losing  ground.     Specific  prices,  varying  often  for  dif- 
ferent quantities,  terms  and  classes  of  customers  but 
definite  for  each  type  of  selling  transaction,  are  now 
the  rule,  particularly  when  sales  are  made  by  the 
manufacturer  to  middleman  rather  than  direct  to  the 
consumer.     Manufacturers  who   set  definite  prices 
for  their  goods  believe  that  by  doing  so  their  sales- 
men can  find  and  hold  trade  on  the  basis  of  quality 
and  service,  which  are  generally  surer  bases  of  prof- 
itable  arid   continued   patronage   than   sales   based 
chiefly  on  price  and  on  the  bargaining  ability  ot 
salesman  and  customer. 

8.  Jobbers',  retailers',  and  consumers  prices.— 
Fixed  prices  do  not  necessarily  mean  the  same  prices 
for  all  buyers.  No  other  price  policy  is  more  firmly 
fixed  than  that  which  dictates  different  prices  to  job- 
bers to  retailers  and  to  consumers.  The  jobber  who 
renders  the  types  of  distributing  service  discussed  m 


il 


( 


4 


■! 

if 


t 


270       MARKETING  AND  MERCHANDISING 

the  chapter  on  "The  Jobber  and  His  Status"  is  gen- 
erally  believed  to  be  entitled  to  the  minimum  prices 
that  the  manufacturer  can  profitably  make.  The 
traditional  practice  is  to  allow  him  the  maximum  dis- 
counts simply  because  he  is  a  recognized  wholesale 
distributor,  regardless  of  the  quantities  he  may  buy, 
altho  there  may  be  different  price  scales,  based  on 
quantities,  for  different  wholesalers.  If  the  same 
manufacturer  sells  both  to  jobbers  and  to  retailers, 
he  normally  protects  his  wholesale  customers  by  sell- 
ing to  retailers  at  a  figure  approximately  the  same 
as  that  which  his  wholesale  customers  must  charge. 
If  he  also  sells  to  consumers,  his  price  to  them  usually 
is  such  as  to  protect  both  jobbers  and  retailers  who 
buy  from  him.  This  practice  needs  no  defense.  It 
is  justified  by  business  ethics,  expediency  and  estab- 
lished custom.  The  consimier,  for  whom  the  manu- 
facturer must  perform  the  full  range  of  selling  ser- 
vices, legitimately  pays  the  highest  prices;  the  re- 
tailer, whose  distributing  activities  relieve  the  manu- 
facturer of  much  of  the  expense  of  reaching  the  con- 
sumer direct,  pays  a  lower  price;  and  the  jobber, 
who  still  further  takes  the  distributing  burden  from 
the  manufacturer's  shoulders,  pays  the  lowest  price  of 
all.  Not  all  manufacturers  operate  in  this  way  but 
different  prices  for  different  classes  of  customers  is 
one  of  the  most  common  policies  in  the  field  of 

marketing. 

9.  Quantity  prices. — Another  basis  of  price  diflfer- 
entiation  is  the  quantity  purchased.     When  minimum 


PRICE  POLICIES 


271 


prices  are  allowed  for  maximum  purchases,  the  prac- 
tice is  justified  by  several  considerations.     It  costs 
the  seller  less  per  dollar  of  sales  to  make  a  large  sale, 
to  pack  the  order  and  to  handle  the  account.     When 
a  buyer  takes  a  large  quantity  at  a  time,  he  stores 
his  surplus  stock  for  himself,  instead  of  requirmg  the 
seller  to  store  it  for  him.     Of  all  existing  price  poli- 
cies the  one  that  permits  different  prices  for  different 
qualities  is  based  perhaps  on  the  soundest  economic 
doctrine.     There  are,  however,  arguments  in  opposi- 
tion.    In  many  lines  the  goods  should  not  be  sold 
in  large  quantities  because  of  the  danger  of  spoiling; 
the  manufacturer  of  such  goods  sometimes  discourages 
excessive  purchases  with  the  consequent  risk  of  de- 
terioration, by  withholding  quantity  prices.     When  a 
product  is  sold  chiefly  thru  small  retailers,  the  oc- 
casional manufacturer  refuses  quantity  prices  on  the 
ground  that  his  success  depends  on  the  success  of  his 
retail  distributors  and  that  it  is  to  his  interest  to  en- 
courage the  application  of  the  principle  of  small 
stocks  and  quick  turnovers.     It  is  sometimes  urged 
that  quantity  prices  are  an  incentive  to  price  cutting 
by  the  large  purchaser  and  that  they  tend  toward 
trade   monopoly   by   giving   an   unfair   competitive 
advantage  to  the  largest  merchandising  units. 

There  is  a  growing  acceptance  of  quantity  pur- 
chased as  the  chief  justification  for  price  differentia- 
tion. In  some  cases  the  traditional  jobbing  discount 
is  giving  way  to  a  straight  quantity  discount,  available 
to  any  one  who  can  buy  in  the  required  quantities,  re- 


i 


(• 


272       MARKETING  AND  MERCHANDISING 

gardless  of  whether  he  is  jobber,  retailer  or  consumer. 
There  is  no  question  that  this  is  inimical  to  the  inter- 
ests of  the  "service  wholesaler"— the  jobber  who  really 
performs  the  traditional  jobbing  services.  It  is 
typical  of  the  changing  conditions  in  the  jobbing  field 
and  the  many  problems  that  the  jobber  is  facing  that 
the  manufacturer,  who  still  seeks  the  jobber's  co- 
operation, in  some  cases  finds  it  expedient  to  aban- 
don the  accepted  jobbing  discount  and  to  substitute 
for  it  a  discount  based  solely  on  quantities. 

10.  Gross  and  net  prices. — The  manufacturer  who 
sells  to  diflFerent  classes  of  customers  at  different 
prices  must  decide  whether  to  pubhsh  net  prices  for 
each  class  or  to  publish  only  a  gross  price-list  sub- 
ject to  a  varying  scale  of  discounts.     The  latter  has 
some  advantages.     It  permits  price  changes  without 
the  republication  of  the  standard  list.     It  permits 
special  prices  to  special  customers  without  open  varia- 
tion from  published  figures.     It  obviates  the  risk  of 
a  net  price-list  for  one  class  of  customers  falling 
into  the  hands  of  a  customer  in  another  class.     When 
the  manufacturer  is  prohibited  by  law  from  dictating 
the  prices  at  which  distributors  must  resell  his  goods, 
he  can  effectively  suggest  a  suitable  resale  price  by 
listing  the  goods  at  the  suggested  resale  price  and 
then  allowing  the  distributor  a  discount  from  this 
figure.     Despite  all  these  advantages  of  the  gross  list 
subject  to  varying  discounts,  the  practice  of  pubhsh- 
ing  net  lists  is  growing  in  favor.     The  time  consumed 
by  the  business  world  in  figuring  percentage  dis- 


PRICE  POLICIES 


273 


counts  is  enormous.  Perhaps  the  fact  that  discounts 
are  an  accounting  nuisance  is  alone  a  sufficient  indict- 
ment of  the  system.  Another  reason  for  the  chang- 
ing procedure  is  the  gradual  abandonment  of  secret 
prices  and  special  concessions  and  the  development 
of  known  net  prices  and  the  general  acceptance  of 
quality  and  service,  rather  than  price,  as  the  basis 
of  permanent  and  profitable  business  relations. 

11.  Price  maintenance. — Until  very  recent  years 
every  manufacturer  who  reached  the  consumer  thru 
middlemen  had  to  decide  whether  he  would  or  would 
not  adopt  the  policy  of  price  maintenance.  Price 
maintenance  meant  the  control  by  the  manufacturer 
of  the  price  at  which  middlemen  sold  his  goods.  He 
might  attempt  to  control  the  resale  price  of  jobbers 
or  of  retailers.  He  might  definitely  fix  resale  prices 
or  he  might  establish  maximum  or  minimum  limits  for 
his  distributors'  prices.  For  many  years  price  main- 
tenance was  practiced  by  occasional  manufacturers, 
without  noticeable  disadvantage  to  consumers,  to  the 
satisfaction  of  at  least  the  majority  of  the  distributors 
of  the  price-fixing  manufacturers  and  to  the  advan- 
tage of  the  manufacturers  themselves.  About  1908 
the  courts  began  to  take  cognizance  of  the  practice  and 
during  the  years  following  there  was  a  long  series  of 
decisions,  some  of  them  contradictory  but  the  majority 
indicating  a  general  trend  of  judicial  opposition  to 
the  right  of  the  manufacturer  to  dictate  the  resale 
prices  of  his  distributors.  Most  manufacturers  aban- 
doned the   attempt  to  control  distributors'   prices. 


li 


\ 


y 


274       MARKETING  AND  MERCHANDISING 

rather  than  run  the  risk  of  governmental  opposition. 

12.  Legal  status  of  price  maintenance. — The 
friends  of  price  maintenance,  while  necessarily  accept- 
ing judicial  interpretation  of  existing  laws,  have  be- 
lieved that  those  laws  were  not  intended  by  their 
framers  to  prohibit  price  maintenance  and  they  have 
sought  specific  legislation  which  would  recognize  the 
legitimacy  of  the  principle  of  price  maintenance  and 
which  would  at  the  same  time  surround  its  applica- 
tion with  sufficient  governmental  oversight  to  render 
impossible  the  abuses  which  might  result  from  its  un- 
restrained use  by  manufacturers.  The  subject  is 
still  in  controversy  and  it  will  remain  so  until  Con- 
gress definitely  takes  from  or  gives  to  the  manufac- 
turer the  right  to  control  his  distributors'  resale 
prices.  Price  maintenance  is  discussed  in  this  Text 
because  it  involves  fundamental  principles  of  market- 
ing, because  all  business  men  should  be  informed  of 
the  arguments  for  and  against  the  practice  and  be- 
cause legislation  may  in  the  future  open  the  way  for 
the  manufacturer  who  wishes  to  adopt  price  main- 
tenance as  part  of  his  selling  pohcy. 

13.  Why  manufacturers  want  to  control  resale 
prices. — The  manufacturer  who  believes  in  price 
maintenance  believes  it  is  to  the  interest  of  himself, 
his  distributors  and  his  ultimate  consumers  to  have 
his  goods  sold  generally  by  all  dealers  in  a  community 
at  the  same  price.  He  beheves  that  price-cutting  on 
his  goods  by  distributors  works  a  hardship  to  which 
he  should  not  be  subjected.     The  sort  of  price-cutting 


PRICE  POLICIES 


275 


to  which  he  most  objects  is  that  indulged  in  by  dealers 
who  take  advantage  of  the  consumer  demand  for  his 
well-known,  advertised  goods  and  oifer  them  at  cut 
prices  in  order  to  attract  trade  to  their  stores.  If 
the  standard  price  for  an  article  in  general  demand 
is  one  dollar,  the  dealer  who  offers  it  at  ninety  cents 
creates  the  impression  of  a  generally  low  level  of  prices 
in  his  store  and  draws  trade  from  dealers  who  do  not 
cut  the  standard  price.  If  the  cut  is  a  mere  bait 
for  trade  and  is  so  great  as  to  eliminate  largely  or 
entirely  the  profit  on  that  particular  line,  the  public 
is  likely  to  believe  that  other  dealers  who  insist  on 
their  legitimate  profit  are  charging  too  high  a  price. 
These  dealers,  unwilling  to  subject  themselves  to  a 
charge  of  profiteering,  lose  their  interest  in  the  line 
and  may  refuse  to  carry  it  at  allvor,  at  least,  may 
cease  their  active  efforts  in  support  of  the  manufac- 
turer. 

Price-cutting  by  one  dealer  may  lead  to  retaliatory 
cutting  by  others.  A  price  war  may  result,  which 
leaves  no  profit  in  the  line  to  any  dealer.  When  this 
point  is  reached,  they  may  throw  it  out  of  their  stocks 
entirely  or  they  may  push  competing  goods,  selling 
the  unprofitable  line  only  when  consumers  insist  upon 
having  it.  . 

14.  Who  could  use  price  maintenance? — Many 
manufacturers  have  experienced  the  disastrous  results 
of  price-cutting  by  distributors.  Others,  in  the  past, 
have  successfully  avoided  these  results  by  adopting 
a  policy  of  price  maintenance.     It  should  always  be 


1 


276       MARKETING  AND  MERCHANDISING 

borne  in  mind  that  only  relatively  few  manufacturers 
have  any  vital  interest  in  controlling  distributors'  re- 
sale prices.  Retailers  do  not  use  cut  prices  as  baits 
for  trade  except  on  well-known,  advertised  articles 
that  are  in  general  demand  by  consumers.  Normally 
only  manufacturers  of  articles  of  this  kind  are  inter- 
ested in  price  maintenance.  Price  maintenance  is  not 
new.  For  a  great  many  years  it  was  available  as  a 
marketing  policy  to  any  manufacturer  who  wished  to 
adopt  it.  In  all  those  years  it  was  adopted  only  by 
relatively  few  manufacturers  and  its  operation  re- 
sulted in  none  of  the  abuses,  the  possibihty  of  which 
has  been  set  up  by  its  opponents  in  denying  the  right 
of  any  manufactiu-er  to  control  distributors^  prices. 
It  never  was  and  it  never  could  be  a  policy  universal 
to  all  manufacturers.  If  the  way  is  opened  in  the 
future  to  its  adoption,  it  will  probably  be  adopted 
only  by  that  comparatively  small  group  of  manufac- 
turers  whose  service,  quality  and  advertising  have 
made  household  words  of  their  trade-names  and  have 
created  wide  and  active  consumer  demand  for  their 
nroducts 

15.  The  consumer's  interest. — In  favor  of  price 
maintenance  are  those  manufacturers  who  believe  it 
IS  a  legitimate  and  valuable  aid  in  protecting  consumer 
good-will  for  their  products,  many  distributors  who 
see  in  price-cutting  a  dangerous  weapon  of  unfair 
competition,  and  many  economists  who,  after  con- 
sidering both  sides  of  the  question,  believe  properly 
supervised  and  controlled  price  maintenance  provides 


I 


PRICE  POLICIES 


277 


the  greatest  good  for  the  greatest  number  of  people. 
In  opposition  there  are  many  strong  arguments. 
The  strongest  is  found  in  the  fact  that,  without  price 
maintenance,  some  people  can  buy  goods,  temporarily 
at  least,  for  less  money  than  they  would  have  to 
pay  if  all  dealers  were  held  to  the  standard  price. 
Even  admitting  that  cut  prices  may  eventually  make 
it  impossible  for  the  consumer  to  get  the  goods  at 
any  price  and  admitting  that  the  store  offering 
standard  goods  at  cut  prices  often  makes  up  its  lack 
of  profit  or  low  profit  on  those  goods  by  charging 
higher  prices  for  the  other  things  it  sells,  the  argument 
of  even  a  slight  or  temporary  advantage  to  the  con- 
sumer is  a  difficult  one  to  combat.  The  manufacturer 
who  wishes  to  control  his  resale  prices  contends  that 
price  maintenance  is  essential  to  the  continued  pros- 
perity of  his  many  employes  and  to  some  extent  to 
the  continued  prosperity  of  multitudes  of  small  re- 
tailers and  that  their  interests  are  of  greater  moment 
than  the  interests  of  the  relatively  few  consumers 
who  are  the  recipients  of  the  temporary  benefits  of 
the  sort  of  price-cutting  that  price  maintenance  is; 
intended  to  prevent. 

16.  Are  maintained  prices  high  prices? — It  is  some- 
times contended  that  the  purpose  of  the  manufac- 
turer in  controUing  prices  is  to  fix  a  high  price.  This 
has  not  been  proved.  Price  maintenance  is  a  policy 
affecting  only  the  manufacturer,  his  distributors  and 
his  consumers.  He  is  in  competition  with  other 
manufacturers  who  may  or  may  not  seek  to  control 


1 


J 


278       MARKETING  AND  MERCHANDISING 

their  own  resale  prices.  His  prices  must  permit  his 
goods  to  be  sold  in  competition  with  others  of  the 
same  type.  Manufacturers  who  wish  to  control  re- 
sale prices  normally  want  only  to  maintain  a  fair 
price  that  will  insure  profits  to  dealers,  keep  their 
continual  good-will  and  build  up  consumer  confidence 
in  the  goods  and  in  their  manufacturer. 

17.  Question  of  fairness  to  dealers. — Another  argu- 
ment against  price  maintenance  is  that  it  is  unfair  to 
the  dealer  who,  by  reason  of  superior  merchandising 
ability  or  by  reason  of  large  purchasing  power,  can 
profitably  sell  goods  at  lower  prices  than  his  com- 
petitors.    If  a  manufacturer  beheved  he  would  be 
benefited  by  price  maintenance  and  if  he  were  per- 
mitted to  apply  the  principle,  he  might  avoid  any 
unfairness  of  this  sort  by  refraining  from  selling  to 
dealers  whose  established  practice  was  to  sell  all  stand- 
ard goods  below  the  market  rate.     Formerly  this 
was  often  done,  exceptions  being  made  when  the 
merchant  agreed  to  sell  his  particular  goods  at  the 
ordinary  market  level.     The  number  of  retail  organ- 
izations that  sell  all  standard  goods  at  cut  rates  has 
greatly  increased  in  recent  years.     Many  manufac- 
turers beheve  no  serious  harm  is  done  their  trade  if 
these  organizations  sell  their  articles  at  cut  rates  while 
other  dealers  in  the  same  communities  have  to  sell  at 
higher  figures.     The  pubhc  are  coming  to  under- 
stand  the   essential   difl'erence   between    "cash-and- 
carry"  stores,  for  instance,  and  so-called  service  re- 
tailers; if  they  want  credit  and  dehvery,  they  realize 


PRICE  POLICIES 


279 


t 


they  must  pay  for  it  and  they  infrequently  resent  the 
necessarily  higher  prices  of  the  service  establish- 
ments. It  is  not  the  customary  cut  rates  of  some 
chain  stores  that  price  maintenance  is  intended  to 
prevent.  Its  chief  object  is  to  keep  a  retailer  from 
demoralizing  a  manufacturer's  market  by  using  the 
manufacturer's  goods,  the  manufacturer's  name  and 
the  manufacturer's  reputation  as  a  mere  bait  to  draw 
customers  into  a  store.  ^ 

18.  Price  maintenance  and  restraint  of  trade. — 
The  judicial  objection  to  price  maintenance  arises 
from  a  belief  that  the  practice  of  controlling  resale 
prices  is  in  opposition  to  the  laws  which  forbid  re- 
straint of  trade.     Restraint  of  trade  is  a  phrase  used 
to  include  everything  which  tends  to  prevent  full  and 
free  competition  among  manufacturers  and  among 
dealers.     Two  of  the  things  that  are  considered  most 
subversive  of  full  and  free  competition  are  conspiracy 
prices  and  the  development  of  monopolies.     A  con- 
spiracy price  is  a  price  fixed  for  a  class  of  commodi- 
ties by  manufacturers  or  dealers  conspiring  together 
so  that  consumers  will  no  longer  get  the  benefit  of 
price  competition.     The  opponents  of  price  mainte- 
nance contend  that  resale  prices  fixed  by  a  manufac- 
turer are  no  different  from  conspiracy  prices.     The 
argument  runs  as  follows:     If  a  manufacturer  says 
that  his  shoes  shall  be  sold  for  no  less  than  five  dollars 
by  all  retailers  who  handle  them,  the  result  is  the  same 
as  it  would  be  if  the  retailers  themselves  conspired  to- 
gether to  get  no  less  than  five  dollars  for  the  shoes. 


f 


f 


280        MARKETING  AND  MERCHANDISING 

The  conspiracy  price  would  be  against  public  policy. 
Why  is  not  the  controlled  resale  price  equaUy  against 
public  policy? 

19.  Difference  between  price  maintenance  and  con- 
spiracy prices.— The  immediate  effect  of  these  two 
practices  on  the  consumer  is  the  same.     But  the  sim- 
ilarity stops  there.     The  two  practices  are  wholly 
different  in  principle  and  in  final  results.     Conspir- 
acy among  dealers  must  be  prohibited,  because  if  it 
is  permitted  in  the  case  of  the  shoes  made  by  one 
manufacturer  it  must  be  permitted  with  respect  to 
all  other  articles.    And  if  dealers  are  permitted  to 
conspire  to  fix  prices,  competing  manufacturers  must 
be  allowed  the  same  privilege.     This  would  result  in 
the  legalized  opportunity  for  the  restriction  of  all 
price  competition  and  for  the  development  of  com- 
plete monopoly  thru  voluntary  combination  in  all 
fields.     The  law  rightly  prohibits  conspiracy  prices, 
because  of  the  possible  results  of  such  prices.     No 
such  results  can  come  from  price  maintenance.     It 
has  nothing  in  it  that  encourages  monopoly.     The 
price  fixing  is  not  done  by  the  cooperation  of  compet- 
ing units;  it  is  done  by  a  single  manufacturer,  who, 
operating  in  a  competitive  field,  must  fix  a  price  that 
will  sell  his  goods  in  competition  with  many  other 
similar  articles. 

The  Honorable  Louis  D.  Brandeis,  in  December, 
1913,  before  his  appointment  to  the  Supreme  Court 
of  the  United  States,  said  it  was  regrettable  that 
was 


PRICE  POLICIES 


281 


1 


confusion  of  price  maintenance  by  independent  manufac- 
turers with  price  fixing  of  monopolies.  People  know  that 
*'some  of  the  early  trusts  and  monopolies"  fixed  prices.  It 
was  natural  to  conclude  that  anything  that  fixed  prices  was 
therefore  objectionable  and  against  the  public  interests. 
An  atmosphere  was  thus  created  which  permeated  the  courts 
and  which  led  them  to  stamp  as  illegal  anything  in  which  the 
attempt  was  made  to  protect  the  price.  The  distinction, 
is,  of  course,  perfectly  clear.  On  the  one  hand  you  have  a 
combination  of  individuals  forming  a  capitalistic  monopoly 
and  using  their  power  to  fix  the  price  of  a  standard  article. 
On  the  other  hand  you  have  an  individual  concern  in  a 
competitive  line  of  business  undertaking  to  preserve  his 
own  creation — that  which  he  has  contributed  to  the  world 
— and  has  marketed  in  a  manner  which  he  believes  is  essen- 
tial to  secure  fair  and  adequate  distribution.  •  .  .  He  who 
sets  the  price,  fixes  it  knowing  that  if  it  is  too  high  either 
one  of  two  things  may  happen:  either  people  will  not  buy 
largely,  or  if  they  do  buy,  and  if  his  profits  are  large,  new 
competitors  will  come  in  and  share  his  market. 

Price  maintenance  does  restrain  price  competition 
among  distributors  so  far  as  the  goods  of  the  price- 
fixing  manufacturer  are  concerned.  It  is  wrong  to 
assume,  how^ever,  that  unrestricted  price  competition 
is  always  of  benefit  to  the  public.  Some  of  the  ear- 
lier so-called  trusts  were  built  up  largely  by  driving 
small  competitors  from  business  thru  a  policy  of  sell- 
ing below  cost  in  one  town  and  making  up  this  loss 
by  higher  prices  in  other  communities.  The  absolute 
independence  of  each  dealer  is  a  fiction.  Unrestricted 
price  competition  has  proved  a  failure  in  encouraging 
competition. 


\ 


I 


282       MARKETING  AND  MERCHANDISING 

'I 

20.  Does  price  maintenance  encourage  monopoly? 
— It  should  be  remembered  always  that  price  main- 
tenance does  not  prohibit  all  price  competition;  it 
prohibits  only  a  very  small  part  of  it,  because  only  a 
comparatively  few  manufacturers  ever  have  had  in 
the  past,  or  will  have  in  the  future,  any  interest  in 
controlling  their  resale  prices.  As  long  as  the  law 
keeps  those  manufacturers  from  conspiring  to  main- 
tain a  uniform  price  on  competing  goods,  there  can 
be  no  danger  to  the  consumer. 

If  all  manufacturers  of  flour  in  the  United  States 
were  to  form  a  combination  for  the  purpose  of  fixing 
a  uniform  price  on  flour,  that  would  be  a  real 
monopoly,  dangerous  in  principle  and  practice.  Peo- 
ple would  have  to  pay  the  uniform  price  or  go  without 
flour.  The  difference  between  this  situation  and  the 
situation  under  price  maintenance  is  fundamental. 
Under  price  maintenance,  there  is  no  combination 
among  manufacturers.  They  are  still  kept  apart 
by  law.  One  flour  manufacturer  fixes  the  resale  price 
on  his  products  alone.  Other  manufacturers  may 
similarly  fix  their  resale  prices  if  they  wish  to  but 
there  is  nothing  arbitrary  or  monopolistic  about  the 
prices.  They  must  be  governed  absolutely  by  the 
laws  of  competition.  The  consumer  need  not  pay  one 
manufacturer's  price  or  go  without  flour.  He  has 
a  choice  among  the  products  of  many  manufacturers, 
all  seeking  bis  trade  and  all  in  real  competition  with 
one  another. 


PRICE  POLICIES 


283 


21.  Price  maintenance  illustrated. — The  real  na- 
ture of  price  maintenance  is  best  seen  from  a  simple 
illustration.     John  Doe  manufactures  flour  in  a  small 
way.     He  sells  it  all  by  putting  it  into  a  truck  and 
peddling  it  from  house  to  house.     Of  course  he  may 
charge  any  price  that  will  sell  the  flour ;  no  one  ques- 
tions his  right  to  do  so.     Later  he  expands  his  busi- 
ness.    He  makes  more  flour  than  he  can  sell  himself 
and  hires  men  to  help  him.     Mr.  Doe  does  not  want 
one  of  his  salesmen  selUng  the  flour  at  $1.40  and  an- 
other selling  it  at  $1.60.     If  this  were  done,  a  con- 
sumer who  paid  the  higher  price  might  hear  of  the 
lower ;  she  would  resent  what  she  might  think  was  an 
attempt  to  cheat  her  and  she  would  probably  be  lost 
as  a  future  customer.     Therefore  Mr.  Doe  calls  his 
salesmen  together  and  says  to  them:     "The  price  of 
this  flour  is  $1.50  a  sack.     I  want  you  to  get  that— no 
more  and  no  less."     No  one  can  question  Mr.  Doe's 
right  to  fix  this  price  and  to  insist  on  his  salesmen 

getting  it. 

The  business  keeps  on  expanding.  Selling  flour 
from  house  to  house  by  means  of  salesmen  becomes 
cumbersome  and  expensive.  John  Doe  finds  an  in- 
creasing demand  for  his  product.  Consumers,  who 
have  bought  it  once,  like  it  and  ask  their  grocers  for 
it.  The  grocers  ask  Doe  to  sell  them  his  flour.  He 
says:  "All  right.  I  will  give  you  a  fair  dealer's 
discount  but  I  don't  want  my  trade  demoralized  by 
the  charging  of  different  prices  in  different  stores.     I 


^'1 


284       MARKETING  AND  MERCHANDISING 

will  sell  it  to  you  if  you  will  agree  to  sell  at  the  uni- 
form price  of  $1.50."  The  dealers  agree  and  the 
flour  is  sold  on  this  basis. 

That  is  all  there  is  to  price  maintenance.  The 
friends  of  price  maintenance  say  that  seUing  flour,  or 
anything  else,  in  this  way  has  in  it  none  of  the  ele- 
ments of  conspiracy  or  monopoly  price.  They  con- 
tend that  if  a  manufacturer  has  the  right  to  name  the 
price  at  which  consumers  shall  get  his  product  when 
he  seUs  direct,  he  shall  have  the  same  right  when  he 
sells  thru  an  intermediary.  They  contend  that  the 
manufacturer  should  have  this  right  if  he  chooses  to 
exercise  it,  because  the  thing  the  dealers  sell  when 
they  sell  his  goods  is  not  exclusively  their  own  prop- 
erty— it  is  the  name,  the  reputation  and  the  prestige 
of  the  manufacturer — and  the  manufacturer  should 
have  the  right  to  control  the  conditions  under  which 
his  name,  reputation  and  prestige  are  used  as  bids 
for  trade,  regardless  of  whether  he  sells  direct  or  thru 
middlemen. 

22.  How  price  maintenance  encourages  competi- 
tion.— A  final  argument  against  price  maintenance  is 
based  on  the  behef  that  it  discourages  competition 
among  retailers — ^that  it  tends  to  build  up  merchan- 
dising monopolies — ^that,  in  general,  it  is  a  tool  of  the 
big  and  powerful  against  the  small  and  weak  factors 
in  manufacturing  and  selling.  The  facts  seem  to 
point  in  just  the  opposite  direction.  The  friends  of 
price  maintenance  say  that  it  is  only  the  large,  well- 
capitalized  retail  store  that  can  continually  use  the 


PRICE  POLICIES 


285 


price-cutting  weapon.  They  point  out  that  cut  prices 
on  standard  goods,  offered  for  advertising  purposes, 
are  used  chiefly  by  chain  stores,  department  stores  and 
mail-order  houses — the  three  types  of  organizations 
that  approach  most  nearly  to  the  idea  of  monop- 
oly in  merchandising.  If  they  are  permitted  to  use 
the  price-cutting  weapon— if  they  are  permitted  to 
continue  to  attract  trade  by  offering  prices  on  stand- 
ard goods  that  are  close  to  or  below  the  proflt  line — 
then  they  will  continue  to  increase  in  size  and  their 
small  competitors  who  do  not  or  who  can  not  meet 
their  prices  will  decrease  in  number  and  importance. 
On  the  other  hand,  if  prices  on  standard  goods  are 
maintained,  the  advocates  of  price  maintenance  hold 
that  the  man  with  small  capital  is  in  exactly  as  strong 
a  competitive  position  as  the  man  with  large  capital, 
as  far  as  the  products  of  the  price-flxing  manufac- 
turer are  concerned.  Competition  then  becomes  a 
matter  of  service,  in  which  the  small  dealer  is  on  just 
as  secure  a  footing  as  the  large  dealer. 

23.  Nature  of  the  price  maintenance  agreement. — 
Nobody  contends  that  manufacturers  should  be  forced 
to  maintain  resale  prices.  Many  manufacturers  have 
preferred  in  the  past,  and  will  prefer  in  the  future,  to 
do  business  without  price  restrictions  of  any  kind. 
Others,  who  have  created  large  consumer  demand, 
believe  that  they  are  hurt  by  price-cutting  by  distrib- 
utors. Nobody  contends  that  dealers  should  be 
forced  to  handle  price-maintained  goods.  Some  do 
not  want  to  do  so;  certainly  they  must  continue  to 


.1 


A. 


•I 


286        MARKETING  AND  MERCHANDISING 

do  business  as  they  please.  But  there  are  many  others 
who  believe  they  are  helped  by  keeping  standard 
prices  on  standard  goods.  The  friends  of  price  main- 
tenance contend  simply  that  when  a  manufacturer 
wants  his  prices  maintained  and  when  he  can  find 
dealers  who  agree  with  him,  the  individual  manufac- 
turer and  such  dealers  as  he  can  find  who  are  willing 
to  do  business  with  him  on  this  basis  should  be  per- 
mitted, with  suitable  restrictions  and  governmental 
regulation,  to  enter  into  a  formal  agreement  without 
danger  of  being  prosecuted  for  it  and  with  the  assur- 
ance that  the  market  will  not  be  demoralized  by  the 
breaking  of  the  agreement  after  it  is  made. 

REVIEW 

What  elements  must  be  included  in  a  manufacturer's  selling 
price  ? 

Why  is  it  seldom  possible  to  sell  a  patented  article  at  a  mo- 
nopoly price? 

What  advantages  are  found  in  definite  prices  set  by  the 
manufacturer? 

How  are  these  applied  to  the  jobber,  retailer  and  consumer? 

Discuss   quantity  prices. 

Compare  the  relative  merits  of  gross  and  net  price-lists. 

What  stand  do  some  manufacturers  take  in  trying  to  control 
resale  prices? 

Discuss  price  maintenance  from  the  standpoint  of  (a)  high 
prices,  (b)  effect  on  the  dealer. 

Make  a  distinction  between  price  maintenance  and  conspiracy 
prices. 

What  effect  has  price  maintenance  on  competition? 


CHAPTER  XVIII 

DISTRIBUTION  AND  DEALER  COOPERATION 

1.  Getting  distribution.— The  manufacturer  who 
sells  direct  to  consumers  has  a  marketing  problem 
that  is  relatively  simple  compared  to  that  of  the  manu- 
facturer who  sells  to  dealers.     The  dealer,  whether 
retailer  or  jobber,  lives  only  by  buying  and  selling 
and  yet  he  is  so  constantly  the  target  of  a  multitude 
of  selling  appeals  that  he  often  protects  himself  with 
the  armor  of  assumed  indifference  to  all  appeals. 
Two  factors  always  enter  into  a  sale  to  a  dealer — ^his 
own  inclinations,  likes  and  dislikes,  and  his  interpre- 
tation of  the  likes  and  dislikes,  of  his  customers. 
Then,  too,  the  distributor  bears  much  of  the  risk  of  un- 
seasonable weather,  changing  consumer  interests  and 
changing   styles.     Careless   buying  may   ruin   him. 
When  he  has  a  choice  of  many  competing  manufac- 
turers' lines,  he  must  balance  his  desire  to  restrict  his 
stock  investment  against  his  desire  to  give  his  trade 
what  they  want.     Many  considerations  influence  his 
purchases,  and  the  manufacturer  seeking  his  aid  in 
distribution  must  give  the  utmost  care  to  avenues  of 
approach  and  to  methods  of  appeal. 

2.  Getting   cooperation.— ''Getting   distribution," 
the  process  of  inducing  dealers  to  stock  a  product,  is 

287 


<i\ 


1: 


288       MARKETING  AND  MERCHANDISING 

not  the  only  marketing  task  of  the  manufacturer  who 
sells  thru  dealers.  He  used  to  be  content  when  his 
goods  were  on  the  dealer's  shelves.  If  he  stops  there 
today,  competition  is  likely  to  leave  the  goods  where 
he  placed  them.  A  dealer  handling  a  thousand  items 
can  not  actually  "sell"  them  all.  The  manufacturer 
must  either  find  some  means  to  interest  the  dealer  in 
moving  his  particular  goods  or  he  must  assume  the 
whole  burden  of  ultimate  sale  by  using  the  amount  of 
advertising  necessary  to  move  them  into  consumers' 
hands,  regardless  of  the  degree  of  the  dealer's  active 
cooperation. 

8.  Advertising  or  salesmen. — If  a  manufacturer 
sells  to  retailers  by  mail  exclusively,  his  problem  of 
getting  distribution  is  a  problem  of  direct-by-mail  ad- 
vertising and  of  correspondence.  If  he  uses  sales- 
men to  sell  to  retailers,  his  distribution  problem  is 
partly  one  of  personal  salesmanship  and  of  sales  man- 
agement and  partly  one  of  advertising,  but  it  also  in- 
cludes certain  considerations  that  are  problems  of 
marketing  in  general  rather  than  of  either  sales  man- 
agement or  of  advertising  alone.  The  first  is  the 
problem  of  preparing  the  way  for  the  salesman. 

4.  Preparing  the  way  for  salesmen. — Some  manu- 
facturers send  salesmen  into  an  uncultivated  field  to 
aill  on  dealers  who  have  never  heard  of  the  manufac- 
turer, his  product,  or  his  salesmen.  It  is  possible  to 
sell  goods  in  this  way  but  it  is  likely  to  be  exjJensive 
and  to  produce  business  slowly.  Some  seed  will  take 
root  and  grow  when  scattered  on  the  hard  ground  but 


DISTRIBUTION 


289 


the  harvest  will  be  more  abundant  when  the  ground  is 
plowed  before  the  seed  is  sown.  Plowing  the  ground 
for  sales  to  dealers  is  largely  a  matter  of  advertising 
in  trade  papers  and  of  direct-by-mail  appeals.  The 
former  is  economical  only  when  the  campaign  is  of 
national  scope.  The  rifle-shot  accuracy  of  aim  in 
direct-by-mail  advertising  is  making  it  increasingly 
popular  as  a  forerunner  of  the  salesman's  visit. 

The  dealers  to  be  called  on  by  a  given  salesman  in 
a  given  period  may  be  selected  in  advance.  The  list 
may  then  be  cultivated  with  any  desirable  degree  of 
intensity.  Personal  letters,  form  letters,  cards, 
folders,  booklets,  broadsides,  catalogs — there  is  al- 
most an  inexhaustible  variety  of  mediums  to  carry  the 
message  that  makes  the  salesman's  task  less  difficult. 
The  purpose  may  be  merely  to  introduce  the  sales- 
man, to  make  it  a  little  easier  for  him  to  get  an  audi- 
ence with  the  buyer,  or  it  may  be  to  carry  the  sale 
right  up  to  the  point  where  all  that  is  needed  is  a 
closing  argument  by  the  salesman.  Salesmen  are 
greatly  helped  by  direct-by-mail  advertising  that  to 
some  degree  helps  to  break  down  buying  resistance, 
spreads  some  knowledge  of  their  goods  and  makes  it 
less  difficult,  even  to  a  slight  extent,  for  them  to  get 
the  ear  and  the  interest  of  the  trade. 

5.  Distribution  in  isolated  communities. — The  ratio 
of  selling  expense  to  sales  usually  varies  directly  with 
the  distances  between  sales.  Obviously  it  costs  less 
to  sell  to  retail  grocers  in  a  large  city  than  to  sell  to 
widely  scattered  country  stores.     A  one-line  manu- 


290       MARKETING  AND  MERCHANDISING 

facturer,  selling  only  in  small  units  to  each  dealer, 
constantly  confronts  the  difficulty  of  covering  all 
parts  of  his  territory  without  undue  expense.  The 
automobile,  greatly  increasing  the  mobility  of  sales- 
men, has  solved  part  of  the  problem  but  country 
roads  are  not  open  to  automobiles  during  all  months 
in  many  parts  of  the  country,  and  even  auto- 
mobile traveling  has  its  expense  limitations.  Two 
methods  are  in  use  to  cover  country  trade  on  which  it 
is  not  feasible  for  salesmen  to  call  with  the  desired  fre- 
quency. One  is  to  combine  mail-order  selling  in  the 
country  with  the  use  of  salesmen  in  the  cities.  Well- 
designed  catalogs  with  frequent  direct-by-mail  ad- 
vertising pieces  have  opened  the  door  to  profitable 
country  trade  for  many  manufacturers  who  could  not 
economically  send  their  salesmen  to  call  on  dealers  in 
isolated  communities.  Another  method  of  reaching 
isolated  dealers  is  to  send  out  "trunk  salesmen."  A 
sample  trunk  is  routed  to  a  selected  list  of  possible 
customers,  with  no  salesman  to  chaperon  it.  When 
all  precautions  are  taken  to  put  customers  to  the  least 
possible  trouble  and  to  provide  for  the  most  effective 
display  of  the  trunk's  contents,  this  method  of  avoid- 
ing the  expense  of  sending  salesmen  to  small  towns 
has  been  surprisingly  productive  of  plus  business  for 
many  manufacturers. 

6.  Selling  the  entire  line. — When  a  manufacturer's 
line  consists  of  a  variety  of  different  articles,  selling 
the  entu-e  line  to  a  dealer  is  often  difficult.  After  a 
man  has  spent  his  allotted  time  in  making  a  sale  of 


DISTRIBUTION 


291 


J 


i 


one  item,  it  is  not  easy  to  begin  all  over  again  and 
hold  the  dealer's  attention  while  the  other  items  are 
presented.  Straight  salesmanship  is  often  not  enough 
to  accomplish  the  task.  Sometimes  a  special  plan  of 
cooperation  with  the  dealer  may  be  offered  if  he  will 
stock  the  whole  line ;  he  may  be  given  a  display  case, 
local  advertising  may  be  done  over  his  name,  or  he 
may  be  supplied  free  with  advertising  material  that 
he  can  send  out  to  his  trade  or  that  he  can  distribute 
to  those  who  visit  his  store.  Another  plan  is  to  offer 
special  prices  if  the  whole  line  is  purchased.  A  fav- 
orite method  is  to  make  up  assortments  of  various 
items,  offered  only  as  assortments  and  carrying  an 
attractive  price.  A  last  resort  is  to  sell  such  items 
as  the  dealer  will  buy  and  then  to  put  in  other  items 
on  consignment.  Consignment  sales  are  deservedly 
unpopular.  What  the  dealer  does  not  pay  for  he  is 
not  likely  to  push.  Nevertheless,  if  no  other  way  is 
open,  it  is  sometimes  possible  to  get  satisfactory  re- 
sults by  delivering  the  goods  and  asking  the  dealer 
to  pay  for  them  only  after  he  has  sold  them. 

7.  Keeping  the  territory  covered. — A  salesman  can 
not  be  in  all  parts  of  his  territory  at  one  time.  When 
he  is  not  trying  to  sell  a  dealer,  some  competitor  is 
probably  doing  his  best  to  get  the  business.  There 
is  a  growing  tendency  to  solicit  mail-orders  actively 
between  salesmen's  visits.  Every  week  or  at  other 
frequent  intervals  during  the  consuming  season,  some 
manufacturers  see  that  all  dealers  receive  reminders 
by  mail  with  order  blanks  and  attractive  sales  appeals. 


1^ 


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292        MARKETING  AND  MERCHANDISING 

Salesmen  are  encouraged  to  keep  in  constant  touch 
by  correspondence  with  their  trade.  The  form  letters 
going  out  from  the  home  office  may  be  signed  with 
the  names  of  the  salesmen.  It  is  important  that  full 
credit  for  mail-orders  should  be  given  to  salesmen  and 
that  both  salesmen  and  dealers  understand  that  this 
will  be  done.  Otherwise  salesmen  are  prone  to  work 
against  the  mail  campaign  rather  than  with  it. 

8.  Distribution  thru  branches. — The  physical  dis- 
tribution of  goods  to  retailers  may  be  either  from 
branch  warehouses  or  direct  from  the  factory.  If  the 
branch  house  system  of  distribution  and  of  centering 
salesmen's  activities  is  used,  there  are  the  advantages 
of  quick  and  cheap  transportation  from  branches  to 
dealers,  prompt  service  on  fiU-in  orders  and  close 
contact  with  the  trade  on  the  part  of  the  local  branch 
manager  and  credit  man.  The  disadvantages  are  the 
lack  of  direct  contact  between  salesmen  and  the  home 
office  and  factory,  scattered  surplus  stocks  thruout 
the  country  and  the  fact  that  dealers  sometimes  pre- 
fer to  buy  from  direct  factory  representatives  instead 
of  from  the  salesmen  of  a  local  distributing  branch. 
The  force  of  these  advantages  and  disadvantages 
varies  with  different  kinds  of  goods  and  with  different 
trade  customs.  Despite  the  recognized  difficulties  of 
operating  thru  branches,  the  use  of  branches  is  neces- 
sary when  a  manufacturer  seeks  country-wide  distri- 
bution, direct  to  retailers,  of  a  product  that  must  be 
purchased  by  the  trade  frequently  and  in  relatively 
small  quantities. 


DISTRIBUTION 


293 


9.  Missionary  salesmen. — In  considering  the  job- 
ber and  his  status  we  have  found  that  he  is  normally 
unable  to  put  special  selling  effort  behind  any  one 
item  in  his  line.  When  a  product  is  new,  getting 
distribution  in  retail  stores  thru  jobbers  is  a  long  and 
discouraging  task  if  the  jobber  is  left  to  accomplish 
it  unaided.  This  statement  of  fact  involves  no  criti- 
cism of  the  jobber's  intent  or  of  his  attitude  toward  the 
manufacturers  who  seek  his  support.  With  the  best 
will  in  the  world,  the  jobber's  salesman  has  little  time 
to  induce  a  dealer  to  try  a  new  product.  Extensive 
advertising  by  the  manufacturer  will  seldom  alone  be 
sufficient  to  build  business  rapidly  thru  jobbers'  sales- 
men. In  getting  distribution  thru  jobbers  many 
manufacturers  use  "missionary"  salesmen — so-called 
because  they  are  used  to  spread  the  gospel  of  the  new 
line  of  goods.  Missionary  salesmen  call  on  the  re- 
tail trade  either  alone  or  in  company  with  a  jobber's 
man,  introduce  the  line  to  the  dealer  and,  if  they  take 
an  order,  take  it  for  the  account  of  any  jobber  whom 
the  retailer  may  name.  The  manufacturer,  in  other 
words,  in  getting  distribution  often  finds  it  necessary 
to  do  the  actual  selling,  payment  for  which  is  sup- 
posed to  be  included  in  the  discount  he  gives  to  the 
jobber.  In  many  cases  missionary  men  are  retained 
long  after  adequate  distribution  has  been  obtained,  as 
insurance  that  the  manufacturer  and  his  goods  will 
be  kept  aggressively  before  the  retail  trade. 

10.  Distribution  and  advertising. — Which  should 
come  first,  distribution  or  advertising?     This  is  one 


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294       MARKETING  AND  MERCHANDISING 

of  the  oldest  questions  in  marketing.  It  remains  un- 
imswered,  because  no  one  answer  will  apply  to  all 
conditions.  Advertising  has  two  purposes — to  in- 
duce consumers  to  ask  for  or  to  accept  a  product  and 
to  induce  retailers  to  carry  it.  The  dealer  says, 
"Create  a  demand,  and  I  will  carry  your  product." 
The  manufacturer  knows  that  it  is  wasteful  and  dan- 
gerous to  create  consumer-interest  when  dealers  do 
not  have  his  goods  in  stock.  When  a  manufacturer 
contemplates  national  advertising,  a  common  practice 
is  for  him  to  get  at  least  a  skeleton  distribution  thru- 
out  the  country  before  the  advertising  begins.  It  is 
always  possible  to  find  some  dealers  who  will  buy  on 
the  strength  of  the  promised  advertising,  or  without 
regard  to  any  advertising  plans  of  the  manufacturer. 
With  a  skeleton  distribution  of  this  sort,  advertising 
may  be  begun  with  the  expectation  of  adding  to  the 
number  of  distributors  as  the  advertising  makes  its 
influence  felt.  This  method  of  getting  distribution 
is  well  adapted  to  a  market  that  is  relatively  "thin" — 
a  market  where  the  number  of  possible  customers  and 
the  number  of  sales  to  each  customer  are  relatively 
few. 

11.  The  intensive  campaign. — When  a  product  is 
intended  to  appeal  to  a  large  number  of  people  in 
each  community  and  when  many  repeat  sales  can  be 
expected,  advertising  and  the  process  of  getting  dis- 
tribution may  advantageously  proceed  side  by  side. 
Most  advertised  articles  are  in  this  class— for  exam- 
ple, food  products,  soap,  drug-store  specialties,  small 


DISTRIBUTION 


295 


articles  of  apparel,  tobacco  and  confectionery.  An 
ideal  way  to  get  distribution  for  products  of  this  type 
is  to  plan  for  an  intensive  selling  campaign  in  care- 
fully selected  communities,  with  local  newspaper  ad- 
vertising working  directly  with  the  local  selling  crews. 
Under  the  inspiration  of  a  large-scale  local  advertis- 
ing campaign,  a  selling  crew  can  often  sweep  thru  a 
city  and  place  a  product  in  a  surprisingly  large  num- 
ber of  stores  in  a  short  time.  As  one  city  yields  a 
satisfactory  number  of  dealers,  the  crews  jump  to 
other  communities  where  local  advertising  again 
shows  the  possibilities  of  large  results  that  can  be  ob- 
tained from  intensive  team-work  between  advertising 
and  personal  salesmanship.  National  advertising 
may  be  begun  as  soon  as  the  distribution  has  become 
fairly  extensive.  If  the  cities  originally  covered  are 
well  scattered  thruout  the  country  and  are  centers  of 
responsive  tributary  territories,  the  influence  of  the 
local  campaigns  will  be  soon  felt  even  in  country  com- 
munities. 

12.  Problem  of  cooperation. — After  distribution 
has  been  obtained,  the  manufacturer  faces  the  prob- 
lem of  getting  dealer  cooperation.  Jobbers  and  re- 
tailers, as  well  as  consumers,  respond  to  high  quality 
merchandise,  fair  prices,  business-like  treatment, 
friendly  consideration,  guarantees,  prompt  attention 
to  orders  and  all  the  other  fundamentals  of  good 
merchandising.  Something  else  is  necessary,  how- 
ever, if  the  manufacturer's  product  is  to  stand  out 
prominently  in  a  store  in  such  a  way  that  it  can  not  be 


296       MARKETING  AND  MERCHANDISING 

OYerlooked  either  by  the  dealer  and  his  salespeople  or 
by  his  customers.  To  induce  active  dealer  coopera- 
tion the  manufacturer  may  give  assistance  in  personal 
salesmanship  or  he  may  offer  advertising  help. 

13.  Help  in  selling  .—Selling  help  in  a  retail  store 
may  take  the  form  of  demonstrations  of  the  manufac- 
turer's goods,  in  charge  of  the  manufacturer's  repre- 
sentatives. This  is  an  expensive  but  effective  method 
of  starting  a  line  of  goods  in  stores  that  are  large 
enough  to  provide  important  outlets  to  the  market. 
Some  manufacturers'  salesmen  spend  their  Saturdays 
and  other  spare  time  behind  retailers'  counters  show- 
ing the  regular  salespeople  how  to  sell  their  goods. 
Salesmen  can  get  good  cooperation  by  dressing 
dealers'  windows,  or  by  going  out  into  a  dealer's  ter- 
ritory and  seeking  out  prospects,  explaining  the  prod- 
uct, making  installations,  handling  complaints  and 
making  sales  for  the  account  of  the  dealer. 

14.  Education  and  cooperation.— One  of  the  im- 
portant points  in  getting  cooperation  of  dealers  is  to 
give  to  dealers  and  their  salespeople  full  information 
which  will  enable  them  to  tell  intelligently  and  effec- 
tively the  story  of  a  manufacturer's  product.  Some 
manufacturers  provide  formal  courses  of  instruction 
for  their  distributors ;  others  send  trained  instructors 
to  meet  the  sales  forces  of  their  principal  dealers ;  still 
others  bring  dealers  into  their  factories  to  show  them 
manufacturing  processes  and  to  encourage  a  feeling 
of  friendly  intimacy  between  producer  and  distribu^ 
tor.    Another  plan  is  to  send  to  dealers  from  time  to 


DISTRIBUTION 


297 


time  interesting  information  about  a  product — ^in- 
formal instruction,  which  has  wider  possibilities  than 
formal  correspondence  courses.  House  organs  sent 
to  dealers  are  intended  to  accomplish  the  same  pur- 
pose. They  give  selling  points  and  they  try  to  make 
the  dealer  and  his  sales  force  feel  that  they  are,  in  an 
important  sense,  a  part  of  the  manufacturer's  own  or- 
ganization. 

15.  Working  with  the  salespeople. — ^^If  a  manu- 
facturer's product  represents  a  large  part  of  the  busi- 
ness of  his  dealers,  he  may  bring  the  dealers  into  some 
organized  group,  with  their  own  officers  and  regula- 
tions and  with  close  contact  between  the  organization 
and  the  factory.  Another  plan  is  to  offer  special 
compensation  or  prizes  to  dealers'  salespeople.  Con- 
tests may  be  conducted  with  substantial- rewards  for 
highest  sales,  the  best  statement  of  selling  points,  or 
the  most  attractive  window  display.  If  a  jobber 
should  permit  direct  contact  between  manufacturers 
and  his  salesmen,  good  results  might  be  obtained  by 
sending  sales  literature  directly  to  the  homes  of  sales- 
men and  by  keeping  in  close  touch  with  them  thru 
personal  letters,  sales  bulletins  and  the  other  many 
methods  of  effective  contact  between  a  home  office 
and  a  field  force.  It  would  however  probably  be  a 
rare  case  in  which  a  jobber  would  permit  this.  As  a 
rule  he  would  say  to  the  manufacturer  that  he  pre- 
ferred to  keep  the  direction  of  sales  efforts  in  his  own 
hands. 

16.  Indirect     service. — Manufacturers     can     get 


it 


I 


298       MARKETING  AND  MERCHANDISING 

dealer  good- will  by  forms  of  service  that  have  only  an 
indirect  bearing  on  the  sale  of  their  products.  One 
manufacturer  offers  a  free  course  in  advertising  to 
his  distributors;  another  provides  without  cost  a  sys- 
tem of  store  accounting.  Courses  in  retail  salesman- 
ship are  frequently  given  away.  These  expensive 
forms  of  service  illustrate  the  lengths  to  which  manu- 
facturers find  it  advisable  to  go  in  order  to  increase  the 
effectiveness  of  retail  distribution  in  general  and  to 
create  good-will  and  get  cooperation  in  the  sale  of 
their  particular  products. 

17.  How  advertising  helps. — The  most  common 
method  of  getting  dealer  cooperation  is  by  means  of 
advertising.  The  influence  of  national  advertising 
has  already  been  considered.  In  the  same  class,  as 
far  as  effect  on  the  dealer  is  concerned,  is  local  adver- 
tising in  newspapers,  in  street-cars,  on  bill-boards  and 
in  moving-picture  theaters,  when  the  advertising  is 
done  in  the  name  of  a  manufacturer  rather  than  the 
dealer. 

18.  Advertising  for  the  dealer. — Other  forms  of  ad- 
vertising that  tie  up  directly  with  the  dealer  are 
largely  used  to  get  his  cooperation.  Local  advertis- 
ing may  be  done  over  the  retailer's  name,  or  the  man- 
ufacturer's  local  advertising  may  list  the  names  of  his 
dealers  in  the  community.  When  conditions  make 
either  one  of  these  two  plans  possible,  it  is,  perhaps, 
the  most  effective  thing  any  manufacturer  can  do  to 
get  dealers  strongly  behind  his  goods. 

19.  Advertising  thru  the  dealer. — Advertising  for 


DISTRIBUTION 


299 


dealers  most  commonly  takes  the  form  of  display  ad- 
vertising of  some  type  in  connection  with  a  dealer's 
store,  or  advertising  material  that  the  dealer  can  dis- 
tribute to  his  customers.  Display  advertising  of  a 
manufacturer's  product  may  be  intended  for  win- 
dows, for  counters,  for  inside  walls,  or  for  the  outside 
of  the  store.  It  may  consist  of  anything  from  an 
elaborate  electrical  sign  to  a  simple  card  cut-out  or 
calendar.  It  may  be  a  display  rack  or  a  special 
counter,  a  poster,  hanger,  a  useful  store  fixture,  or 
even  uniforms  for  the  sales  force.  Advertising  ma- 
terial for  the  dealer  to  use  himself  may  be  electrotypes 
for  his  newspaper  advertisements,  lantern  slides  for 
picture  theaters,  prepared  form  letters,  booklets  and 
other  mailing  pieces  for  the  dealer  to  mail  to  his  trade, 
or  samples,  blotters,  or  novelties  for  him  to  distribute 

free. 

20.  Allocation  of  expense. — Advertising  material 
for  the  dealer's  use  may  be  furnished  to  him  without 
cost,  or  he  may  be  asked  to  pay  for  part  or  all  of  it. 
There  is  no  standardization  of  practice.  The  degree 
to  which  dealers  can  be  induced  to  pay  part  of  the  ex- 
pense of  the  manufacturer's  local  advertising  depends 
on  many  things — the  importance  of  the  product  in 
the  dealer's  sales  volume,  his  extent  of  control  of  local 
distribution,  the  real  value  of  the  advertising  material 
and  the  degree  to  which  the  material  advertises  the 
dealer  and  his  store  as  well  as  the  manufacturer  and 
his  product. 


I 

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300       MARKETING  AND  MERCHANDISING 

REVIEW 

What  factors  influence  a  dealer  in  buying  goods? 

How  does  a  manufacturer  get  distribution  to  retailers: 
(a)  when  selling  by  mail,  (b)   when  selling  thru  salesmen? 

How  can  the  manufacturer  aid  the  salesmen  before  they  go 
into  the  field? 

What  methods  are  used  to  cover  country  trade  on  which  sales- 
men are  unable  to  call  at  regular  intervals? 

How  does  a  manufacturer  induce  dealers  to  stock  his  entire 
line? 

How  can  a  manufacturer  supplement  the  work  of  his  salesmen 
between  the  visits  to  retailers? 

Define  a  missionary   salesman. 

How  would  you  conduct  an  intensive  selling  campaign? 

State  some  ways  in  which  manufacturers  may  obtain  dealer 
cooperation. 


RETAIL  STORE  PROBLEMS 

1.  The  retailer's  special  interests. — All  the  pre- 
ceding chapters  have  had  a  bearing  on  retailing,  altho 
the  point  of  view  has  been  in  the  main  that  of  the 
manufacturer  and  wholesaler.  In  the  present  chap- 
ter and  the  two  which  follow,  specific  problems  of 
merchandising  are  considered  primarily  from  the 
viewpoint  of  the  retail  dealer.  They  have  to  do  with 
some  of  those  phases  of  store  management  which  are 
not  concerned  exclusively  either  with  advertising  or 
with  personal  salesmanship. 

2.  Choosing  a  community. — When  a  prospective 
retailer  is  in  the  fortunate  position  of  being  able  to 
select  the  community  in  which  he  is  to  operate,  he  will 
find  his  chances  for  success  improved  if  he  will  base 
his  selection  on  certain  fundamental  facts  about  each 
locality  that  is  under  consideration.  What  is  the 
population?  Is  there  a  predominance  of  men  or 
women?  How  is  the  population  divided  among  na- 
tionalities and  races?  To  what  extent  and  how  do 
racial  differences  govern  buying  habits  and  retail 
relations  ? 

What  is  the  buying  power  of  the  people  ?  How  do 
they  earn  a  living?     What  are  the  weekly  pay-rolls 

301 


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302        MARKETING  AND  MERCHANDISING 

of  the  town?  Are  the  local  industries  on  an  all-y ear- 
around  basis,  or  are  seasonal  shut-downs  common? 
Are  the  industries  long-established  or  are  they  new 
and  uncertain?  If  the  contemplated  location  is  a 
country  town,  what  are  the  conditions  of  soil,  climate, 
and  tillage  that  determine  the  prosperity  of  the  sur- 
rounding farm  community?  Do  the  farmers  own  or 
rent  their  places  ?  Are  the  farms  occupied  or  is  there 
II  movement  away  from  them?  What  kinds  and 
quantities  of  crops  are  raised  ? 

Is  the  town  increasing  in  prosperity,  is  it  standing 
still,  or  is  it  on  the  down-grade?  How  strong  is  the 
spirit  of  community  pride  and  cooperation?  Is  the 
town  a  shopping  center  for  the  surrounding  coun- 
try, or  does  it  lose  to  other  towns  more  trade  than  it 
receives  from  them?  How  accessible  is  the  commun- 
ity to  others — are  there  railroads,  good  roads,  trolley 
lines?  Is  it  a  mail-order  stronghold?  What  are  the 
rents,  taxes  and  insurance  rates?  Are  there  good 
newspapers  and  other  estabhshed  advertising  me- 
dia? How  about  competition?  Is  it  aggressive  or 
passive?  Is  there  room  for  a  new  store?  All  these 
things  and  many  more  should  be  considered  by  the 
prospective  merchant  before  he  entrusts  his  capital 
and  his  enterprise  to  retail  risks  in  any  city  or  town. 

3.  Selecting  a  location. — In  selecting  the  best  place 
to  establish  a  store  within  a  community,  many  of  the 
same  considerations  apply  as  in  the  selecting  of  the 
community  in  which  to  operate.  Population,  local 
buying  power  and  transportation  lines  are  important 


RETAIL  STORE  PROBLEMS 


303 


to  the  merchant  who  can  not  establish  himself  in  the 
center  of  the  town.  If  he  is  to  rent,  he  must  establish 
a  limit  that  he  can  pay  and  then  find  the  best  situa- 
tion available  for  that  amount  of  money.  What  he 
can  pay  depends  on  the  kind  of  trade  to  which  he  in- 
tends to  appeal  and  the  basis  on  which  he  expects  to 
get  business.  The  price  appeal  will  often  draw  peo- 
ple off  the  main  street  and  even  off  the  street  level. 
Upstairs  locations,  however,  are  for  good  reasons 
little  liked.  The  relation  to  other  stores  is  important. 
The  aggressive  merchant  is  not  afraid  to  do  business 
side  by  side  with  competitors;  if  he  can  get  a  site 
where  the  people  come  to  buy,  he  will  take  the  risk 
of  getting  his  share  of  the  trade. 

Experienced  merchandisers,  notably  the  chain 
stores,  pick  locations  almost  on  the  basis  of  an  exact 
science.  When  considering  a  new  site,  they  clock 
the  passers-by  at  various  times  of  the  day  and  on  all 
days  of  the  week.  They  know  how  many  of  the  pas- 
sers-by are  men,  women,  or  children^  They  study  the 
direction  of  traffic  and  analyze  the  conditions  that 
direct  attention  and  trade  to  specific  blocks  and  spe- 
cific points  within  each  block.  They  know  which  side 
of  the  street  is  preferable  in  each  individual  case,  not 
relying  entirely  on  the  commonly  accepted  generali- 
zation that  the  side  shaded  from  the  afternoon  sun  is 
usually  the  better  for  stores  appealing  to  women. 
Before  making  any  effort  to  obtain  a  site,  they  can 
closely  approximate  the  number  of  customers  the 
store  will  have  from  the  first  day  of  its  opening. 


1 


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SOi       MARKETING  AND  MERCHANDISING 

4.  Influence  of  location. — A  good  or  bad  location 
does  not  make  or  break  a  store.  Good  management 
will  draw  trade  anywhere.  Location  is  important 
only  as  it  handicaps  or  helps  a  merchant.  Brains  can 
make  a  merchandising  success  in  almost  any  location, 
but  the  success  will  be  hastened  if  the  physical  en- 
vironment is  helpful  rather  than  harmful. 

5.  Analyzing  a  retail  market. — After  a  merchant 
is  established,  he  may  conduct  his  business  in  two 
ways.  He  may  settle  down  into  a  storekeeper,  con- 
tent to  watch  the  passing  tide  of  trade  and  to  serve 
such  parts  of  it  as  casually  drift  into  his  store,  carry- 
ing the  kind  of  stock  that  satisfies  his  own  preferences 
and  that  sells  moderately  well  to  his  customers.  Or 
he  may  be  a  real  merchant,  studying  closely  the  peo- 
pie  and  the  territory  that  he  must  appeal  to  if  his  busi- 
ness  is  to  grow,  scheduling  his  own  forces  and  the 
forces  of  competition  as  a  general  does  when  he  goes 
into  battle,  analyzing  wants  and  tendencies  on  the 
part  of  his  trade  and  in  all  ways  adapting  his  methods 
L  his  stock  to  the  specific  ^irement!  of  the  m„- 
ket  on  which  he  must  depend  for  his  success.  Mar- 
ket analysis  is  often  thought  of  as  applying  only  to  a 
manufacturer's  or  jobber's  problems.  It  is  equally 
applicable  in  the  retail  field. 

6.  Purposes  of  market  analysis. — ^Many  of  the 
points  outlined  in  previous  chapters  on  study  of  the 
market  and  methods  of  reaching  the  market  are  help- 
ful to  the  retailer  who  seeks  to  find  out  all  he  can 


RETAIL  STORE  PROBLEMS 


305 


about  the  people  who  might  buy  what  he  has  to  sell. 
He  should  be  informed,  too,  on  all  the  points  that 
have  been  listed  as  important  in  selecting  a  location 
for  a  store.  Retail  market  analysis  has  two  main 
purposes.  One  is  to  ascertain  consumer  wants  and 
to  prepare  to  satisfy  them  by  a  realignment  of  store 
stocks  and  store  practices.  The  other  is  to  find  the 
most  effective  methods  of  extending  the  store's  radius 
of  appeal  and  to  find  the  most  economical  and  profit- 
able methods  of  carrying  the  store's  appeal  to  the 
public. 

7.  Extending  the  retail  fields. — Many  stores  oper-^ 
ate  only  in  a  limited  field  because  their  proprietors 
do  not  take  the  trouble  to  study  the  field  and  to  extend 
it.  Retailing  is  sometimes  considered  a  business  of 
small  possibilities  except  for  the  proprietors  of  de- 
partment stores,  chain  stores,  mail-order  houses  and 
down-town  specialty  stores.  If  its  possibilities 
are  narrow,  the  fault  lies  more  with  the  retailer 
than  with  retailing.  Probably  there  are  types  of 
stores  that  must  always  rely  exclusively  on  neighbor- 
hood trade  but  for  the  most  part  the  retailer's  field 
is  what  he  chooses  to  make  it.  This  generalization 
is  subject  to  reasonable  interpretation.  It  does  not 
mean  that  the  specialty  store  in  an  out-of-the-way 
section  of  a  city  can  draw  trade  from  other  cities, 
nor  does  it  mean  that  a  down-town  store  can  often 
grow  to  national  proportions.  It  is  true,  however, 
that  many  retail  stores  are  operating  in  fields  re- 


? 


306       MARKETING  AND  MERCHANDISING 

stricted  by  the  lack  of  vision  of  their  proprietors. 
Market  analysis  is  the  means  of  translating  business 
vision  into  tangible  achievement. 

When  people  want  to  compare  values  before  mak- 
ing  purchases,  a  store  can  pull  trade  from  a  long 
distance.  Shopping  lines,  we  have  found,  are  those 
that  usually  involve  considerable  expenditures,  al- 
tho  in  the  field  of  women's  wants  minor  items  are 
often  bought  on  a  shopping  basis.  Stores  that  appeal 
to  the  shopping  trade  normally  have  a  wider  natural 
territory  than  those  that  sell  convenience  goods — 
goods  bought  because  of  habit,  convenience,  or  im- 
pulse.  A  woman's  clothing  store  can  easily  draw 
trade  from  a  distance.  A  grocery  store  has  greater 
difficulty  in  extending  its  field.  The  store  dealing 
in  convenience  goods,  however,  is  by  no  means  cut 
off  from  development.  Under  good  management 
and  with  attractive  appeals,  it  can  and  does  extend 
its  territory  much  beyond  the  narrow  neighborhood 
that  the  unprogressive  store  is  content  to  serve. 

8.  Applying  the  results  of  analysis. — The  facts 
discovered  by  market  analysis — population,  age 
groups,  nationalities,  incomes,  social  life,  economic 
standards,  buying  habits,  competition,  transporta- 
tion facilities  and  all  the  other  facts  about  the  market 
and  methods  of  reaching  it— should  be  interpreted 
in  terms  of  the  individual  store's  stock.  A  dealer 
in  men's  and  boys'  clothing  may  endeavor  to  find  out 
the  number  of  suits  of  clothes  bought  in  his  territory 
in  a  year,  the  grades  of  clothing  bought  and  the  quan- 


RETAIL  STORE  PROBLEMS 


307 


tities  of  each,  the  places  where  they  are  bought,  his 
own  ability  to  satisfy  local  requirements,  his  own 
sales  per  capita  and  per  family  and  the  opportunities 
to  increase  his  sales  and  the  methods  most  likely  to  be 
effective.  This  is  elementary  but  it  suggests  the  in- 
formation a  retailer  should  have  about  each  item  in 
his  stock.  Retail  market  analysis  carried  to  this  ex- 
treme is  unusual.  Perhaps  that  is  the  reason  for  the 
general  belief  that  a  retail  business  must  normally 
be  a  small  business. 

9.  Retail  service. — It  has  been  said  that  the  reason 
some  stores  succeed  while  others  fail  is  that  the  suc- 
cessful ones  render  service  and  the  others  do  not. 
This  is  true  in  the  sense  that  any  business  enterprise 
must  serve  the  community  in  some  way  if  it  is  to 
exist.  It  is  also  true  if  by  service  is  meant  good 
values,  intelligent  buying,  and  courteous  and  helpful 
selling.  Too  often  the  retailer  thinks  of  service  in 
other  terms.  Under  the  guise  of  service,  many  re- 
tailers have  built  up  a  heavy  structure  of  overhead 
expense — rest  rooms,  first  aid  equipment,  professional 
shoppers,  free  lectures  and  concerts,  check  rooms, 
sales  on  approval,  elaborate  store  fixtures,  expensive 
floor  space  given  over  to  unprofitable  lunch-rooms, 
unnecessarily  expensive  delivery,  too  extended  credit 
facilities  and  many  other  things  all  designed  to  make 
the  store  an  attractive  place  to  trade.  There  can  be 
no  quarrel  with  the  purpose  of  these  things,  nor  are 
all  of  them  unnecessary.  Some  of  them  are  useful 
and  profitable.     The  trouble  is  that  service,  in  the 


If 


308       MARKETING  AND  MERCHANDISING 

sense  of  giving  the  customer  something  more  than  he 
openly  pays  for,  is  likely  to  be  carried  to  unprofitable 
extremes  and  to  add  a  fixed  charge  to  the  expense  of 
doing  business  that  keeps  up  prices  and  really  limits 
the  opportimity  for  large  development.  As  adver- 
tising, these  so-called  forms  of  service  may  be  effec- 
tive but  their  efiiciency  should  be  judged  on  exactly 
the  same  basis  as  any  other  form  of  advertising— the 
relation  between  the  expense  involved  and  the  profits 
to  be  derived  from  resulting  sales. 

10.  Value  of  fianed  policies. — A  business  with  estab- 
lished policies  may  be  compared  to  a  man  with  fixed 
principles.  An  unprincipled  man  does  not  neces- 
sarily do  everything  wrong  but  he  does  many  things 
wrong  because  he  has  no  standard  of  conduct  to 
guide  him.  So  a  business  without  fixed  policies  may 
not  be  unsuccessful  but  its  many  mistakes  and  vacil- 
lations are  likely  to  alienate  trade  and  handicap  its 
future.  A  mere  storekeeper  buys  a  stock  and  does 
the  exi)edient  thing  from  time  to  time  to  seU  it.  A 
merchant  has  a  definite  goal;  he  decides  in  advance 
the  basis  on  which  he  intends  to  appeal  for  trade  and 
the  kind  of  reputation  that  he  seeks  to  build  up.  He 
does  not  do  the  merely  expedient  thing ;  he  makes  all 
his  actions  conform  to  the  plan  he  has  laid  down  for 
the  future  of  his  store. 

11.  Advertising  policy. — ^Among  the  matters  of 
policy  that  should  be  fundamental  in  a  retailer's 
plans  are  his  attitude  toward  nationally  advertised 
goods  and  toward  exclusive  agencies.     These  have 


RETAIL  STORE  PROBLEMS 


309 


been  considered  in  preceding  chapters.  Another 
point  of  policy  is  the  extent  to  which  the  retailer  is 
to  use  his  own  advertising  to  attract  trade  and  forms 
in  which  he  is  to  employ  it.  Few  retailers  consciously 
set  their  faces  against  advertising.  Relatively  few 
have  a  definite  policy  with  respect  to  its  use.  Many 
dealers  think  they  are  advertising  when  they  are 
simply  spending  money.  One  of  the  easiest  and  most 
alluring  ways  to  dissipate  resources  is  to  attempt  to 
enter  the  advertising  field  with  little  knowledge  and 
less  ability  and  to  buy  space  in  this  or  that  medium 
on  a  hit-or-miss  basis,  influenced  chiefly  by  the  ora- 
tory of  solicitors,  and  to  prepare  copy  on  the  basis 
of  its  appeal  to  the  writer  rather  than  to  the  reader. 
The  retail  advertiser  must  above  all  else  avoid  waste 
circulation.  It  is  obvious  that  advertising  in  news- 
papers of  city  wide  circulation  would  often  be  wasteful 
for  the  neighborhood  store  so  situated  that  it  can  draw 
its  trade  only  from  a  limited  area.  Conditions  force 
such  a  store,  when  it  advertises,  to  lay  stress  upon 
various  forms  of  direct  advertising. 

Advertising  is  a  major  problem  in  a  retail  store — 
it  might  almost  be  said  to  be  the  major  problem. 
A  definite  purpose  and  a  definite  plan  with  a  specific 
appropriation  and  foreknowledge  of  the  occasions 
and  the  manner  in  which  the  appropriation  is  to  be 
invested  are  the  first  requisites  for  retail  advertising 
success. 

12.  Price  policy. — Price  policy  is  at  the  front  of 
retail  problems.    It  is  possible  to  build  a  business 


i 


aiO       MARKETING  AND  MERCHANDISING 

almost  entirely  on  a  cut-price  basis.  It  is  also  pos- 
sible to  build  it  on  a  strict  adherence  to  market  prices, 
with  only  occasional  reductions  and  clearing  sales. 
It  can  not  be  built  on  both  bases  and  at  the  same 
time  build  up  a  homogeneous  clientele.  A  store  is 
known  by  its  prices  just  as  much  as  by  its  stock  and 
its  service.  The  policy  of  one  price  to  all  is  now  so 
generally  established  as  to  need  little  comment. 
More  and  more,  too,  the  marking  of  goods  in  plain 
figures  instead  of  in  cabalistic  symbols  is  increasing 
the  confidence  of  the  public  in  the  fair  intentions  of 
retail  dealers.  Nothing  else  a  store  can  do  to  estab- 
lish its  individuality  is  more  influential  than  the  price 
policies  on  which  it  normally  operates. 

13.  Money-back  policy. — The  policy  of  refunding 
the  purchase  price  when  customers  wish  to  return 
purchases  is  now  so  generally  established  that  it  is  dif- 
fieult  to  realize  that  its  wisdom  was  ever  questioned ; 
yet  it  is  only  a  few  decades  ago  that  "your  money 
back  if  you  want  it"  came  into  vogue.  This  policy 
removes  suspicion  and  establishes  good-will.  It 
holds  customers  and  does  much  to  build  a  permanent 
following.  An  application  of  the  money-back  policy 
in  some  form  is  absolutely  essential  to  retail  suc- 
cess. The  policy  is  often  abused.  It  is  abused  by 
retailers  themselves  who  unduly  encourage  the  de- 
livery of  goods  on  approval,  thereby  contributing  to 
their  own  losses;  and  it  is  abused  by  careless  and 
dishonest  consumers.  Many  retailers  are  cooperat- 
ing to  prevent  its  abuse,  in  that  way  insuring  the 


RETAIL  STORE  PROBLEMS 


311 


continuance  of  a  pohcy  of  fairness  and  liberality 
which  is  demanded  both  by  consumers  and  by  the  good 
biisiness  judgment  of  retailers. 

14.  Adjustment  policy. — Closely  allied  to  the 
policy  of  refunding  the  purchase  price  is  the  method 
of  handling  complaints.  It  is  not  possible  for  all 
customers  to  be  satisfied  with  goods  and  treatment 
all  the  time.  Complaints  are  bound  to  develop.  The 
method  of  handling  them  is  an  important  cause  of 
success  or  failure  in  retailing.  Between  the  principle 
that  "the  customer  is  always  right"  and  the  opposite 
extreme  of  surly  refusal  to  make  any  adjustments, 
there  is  ground  for  many  variations  of  policy.  The 
best  practice  is  to  encourage  complaints.  The  dis- 
satisfied customer,  who  says  nothing  for  fear  of  hav- 
ing her  word  or  motive  questioned  or  because  of  a 
cynical  belief  in  the  futility  of  a  complaint,  forms  the 
nucleus  of  a  circle  of  discontent  that  will  cause  the 
loss  of  much  business.  On  the  other  hand,  there  is 
no  better  advertisement  than  a  dissatisfied  customer 
whose  complaint  has  been  handled  in  an  unexpectedly 
liberal  way.  So  valuable  is  Hberality  in  making  ad- 
justments as  a  source  of  satisfaction  and  public  con- 
fidence that  a  dealer  can  well  afford  to  adopt  a  policy 
which  may  result  in  his  being  imposed  upon  occasion- 
ally but  which  will  be  well  worth  its  cost  as  an 
advertisement  for  his  store. 

15.  Store  individuality. — ^When  a  man  makes  a 
success  in  business  or  a  profession,  in  politics  or  so- 
ciety, we  find  that  he  has  marked  individuality  or  dis- 


I 


312       MARKETING  AND  MERCHANDISING 

tinction,  that  he  possesses  strongly  some  characteristic 
or  characteristics  that  lift  him  above  mediocrity  and 
set  him  apart  from  the  crowd.  His  distinction  is 
not  the  result  of  his  success ;  his  success  is  partly  due 
to  the  distinctive  qualities  that  he  possesses — unusual 
mentality,  courage,  will-power,  executive  ability, 
persistence,  or  personal  charm.  It  is  the  same  with  a 
retail  store.  Go  up  and  down  the  streets  of  a  city, 
and  you  will  find  hundreds  of  small  shops,  all  more  or 
less  alike,  handling  different  kinds  of  goods  to  be 
sure,  but  all  partaking  of  a  common  drabness  of  tone 
and  conducted  by  individuals  infinitely  different  in 
countless  respects  but  without  the  outstanding  marks 
of  distinction  that  set  them  off  markedly  from  their 
fellows.  Here  and  there  is  a  store  that  is  different. 
Its  name  is  known  far  beyond  its  immediate  neighbor- 
hood. It  is  one  of  the  leaders  in  the  merchandising 
community.  Why  is  it  a  leader?  Because  it  has 
real  distinction,  real  individuality,  because  it  is  ani- 
mated by  a  person  or  a  group  of  persons  who  in 
themselves  possess  the  qualities  of  distinction  and 
who  have  put  their  personality  into  their  business. 
No  store  can  be  largely  successful  unless  it  stands 
out  prominently  from  its  competitors  in  some  respect. 
Store  individuality  is  obtained  in  many  ways — un- 
usual courtesy  on  the  part  of  all  employes,  a  dis- 
tinctive style  of  advertising,  peculiar  excellence  of 
stock  and  assortments,  a  reputation  for  special  values 
in  certain  lines  of  goods,  unique  appearance  or  ar- 
rangement of  the  store,  an  intangible  spirit  of  help- 


RETAIL  STORE  PROBLEMS 


313 


fulness  and  friendliness,  liberality  in  adjustments — 
these  and  many  other  things  are  available  to  the 
dealer  who  realizes  that  mere  storekeeping  has  few 
rewards  but  that  retail  merchandising,  on  the  basis 
of  attractive  individuality  of  the  store,  its  stock,  its 
employes  and  its  methods,  is  one  of  the  most  profit- 
able methods  for  the  employment  of  capital  and  busi- 
ness ability. 

REVIEW 

What  facts  should  be  considered  by  the  retailer  in  choosing 
a  community  in  which  to  establish  a  store? 

Having  chosen  a  town  or  city,  what  influences  should  be  con- 
sidered in  choosing  a  site  for  the  store? 

How  can  a  merchant  analyze  his  market?  What  is  the  value 
of  such  analysis?     How  can  it  be  applied? 

Discuss  retail  service. 

Why  should  a  merchant  adopt  fixed  policies  in  retailing? 
Discuss  some  of  them. 

Give  some  ways  in  which  store  individuality  may  be  obtained. 


I 


t 


CHAPTER  XX 

TURNOVER,  MARK-UP,  AND  PROFIT 

1.  What  is  turnover?— A  merchant's  investment 
in  his  business  consists  of  his  brains  and  his  capital. 
He  is  most  successful  when  he  uses  his  brains  to 
direct  the  use  of  his  capital  to  the  best  advantage. 
One  of  the  most  important  measurements  of  the  ad- 
vantageous use  of  capital  is  the  rate  of  turnover. 
The  principle  of  turnover  is  simple.  A  merchant 
has  $10,000  to  invest  in  stock.  If  his  sales  in  the 
course  of  a  year,  figured  on  the  basis  of  cost  price  of 
the  goods  sold,  amount  to  only  $10,000,  he  has  had 
a  one-time  turnover  of  capital.  His  total  selling  and 
other  expense  must  be  allocated  to  the  goods  sold  and, 
if  he  seeks  a  6  per  cent  net  profit  on  his  capital  in- 
vestment, he  must  get  that  amount  of  net  profit  on 
each  individual  sale.  Suppose,  however,  that  with 
the  same  capital  investment  his  annual  sales,  still 
figured  on  the  basis  of  cost  price  of  goods,  amount  to 
$20,000.  He  has  had  a  two-time  capital  turnover. 
If  his  expenses  have  not  been  increased,  the  allocation 
of  expense  to  each  sale  may  be  cut  in  two  and  he  has 
to  make  a  net  profit  of  only  3  per  cent  on  each  trans- 
action in  order  to  show  an  annual  net  of  6  per  cent 
on  his  capital  investment  in  stock.    Without  attempt- 

314 


TURNOVER,  MARK-UP,  AND  PROFIT       315 

ing  to  follow  precise  accounting  technic,  this  illus- 
tration of  the  principle  of  turnover  indicates  its  very 
great  importance  in  merchandising.  In  the  opinion 
of  many  people  the  rate  of  turnover  is  the  most  im- 
portant single  factor  in  determining  retail  success. 

The  importance  of  turnover  is  recognized  by  many 
merchants  who  fail  to  use  the  word  in  its  precise  mean- 
ing and  who  figure  turnover  inaccurately.  The 
method  of  computing  turnover  is  a  matter  that  lies 
partly  in  the  field  of  accounting.  This  is  not  a  text 
on  accounting  but  there  is  entire  propriety  in  includ- 
ing here  a  brief  treatment  of  a  semi-accounting  prin- 
ciple that  is  the  very  foundation  of  successful  mer- 
chandising. 

2.  Two  kinds  of  turnover. — There  are  two  kinds 
of  turnover — stock  turnover  and  merchandise  capital 
turnover.  The  latter  has  already  been  illustrated.^ 
Stock  turnover  is  the  more  important  as  a  measure  of 
success.  The  basing  of  turnover  on  the  amount  of 
capital  invested  in  stock  leaves  out  of  consideration 
the  fact  that  stock  is  often  bought  on  temporarily 
borrowed  capital.  The  live  merchant  uses  his  bor- 
rowing facilities  as  freely  as  he  uses  his  own  capital. 
Therefore  true  turnover  is  stock  turnover— the  rate 
of  movement  of  goods  in  and  out  of  the  store,  regard- 
less of  the  particular  fund  that  is  drawn  upon  for 

their  payment. 

3.  Methods  of  figuring  turnover.— Stock  turnover 
can  be  ascertained  in  three  ways: 

Method  No.  1 :     Total  sales  for  the  year,  divided 


■liiii 


;  (! 


316       MARKETING  AND  MERCHANDISING 

by  the  amount  of  average  inventory  figured  at  its 
full  selling  price,  and  not  at  cost  price.  If  annual 
sales  are  $50,000  and  during  the  year  there  has  been 
in  stock  an  average  supply  of  goods  having  a  selling 
value  of  $10,000  there  has  been  a  five-time  turnover. 

Method  No,  2:  Total  sales  for  the  year,  figured 
on  the  basis  of  cost  price  of  the  goods  sold,  divided 
by  amount  of  average  inventory  taken  at  cost  price. 

Method  No.  3:  Cost  of  goods  sold  during  the 
year  plus  the  year's  overhead  expenses,  divided  by  the 
average  inventory  taken  at  cost  figures  plus  the  aver- 
age  overhead  Jany  specified  pfriod. 

It  is  important  that  both  sales  and  inventory  be 
figured  on  the  same  basis.  Dividing  selling  price 
totals  by  a  cost-price  inventory  gives  obviously  in- 
accurate results.  It  is  also  vital  that  the  inventory 
be  an  average  for  the  year  and  not  a  specific  inven- 
tory as  of  any  one  time.  Method  No.  1  is  generally 
favored.  It  is  accurate  if  inventories  can  be  taken 
at  selling  prices  that  represent  actually  what  the  goods 
will  bring  and  not  merely  what  the  merchant  hopes 
they  will  bring.  Few  merchants  know  precisely 
what  any  item  will  be  sold  for ;  special  sales  prices  to 
move  slow  sellers  may  upset  the  inventory  estimates 
to  a  degree  that  will  appreciably  affect  the  accuracy 
of  Method  No.  1.  Unless  fixed  mark-ups  are  the 
rule  in  a  business,  Method  No.  2  is  the  more  accurate 
method  of  figuring  turnover.  Perhaps  the  best  plan 
is  to  convert  all  sales  and  inventory  figures  into  both 
cost  price  and  selling  price,  and  to  figure  turnover 


TURNOVER,  MARK-UP,  AND  PROFIT       317 

by  both  methods.  The  comparison  of  results  will 
be  interesting  as  indicating  the  extent  to  which  ex- 
pected selling  prices  have  been  realized. 

4.  Value  of  stock  control. — Turnover  can  at  times 
be  advantageously  figured  on  other  than  annual  fig- 
ures. If  a  stock  is  unusually  active,  valuable  control 
can  be  exercised  by  figuring  turnover  for  each  month 
or  for  any  other  part  of  a  year.  Figures  for  the 
turnover  of  the  entire  stock  should  be  supplemented 
by  figures  for  the  turnover  by  departments  and  by 
individual  items  in  the  stock.  Records  carried  to  this 
extreme  are  unusual  but  they  are  of  great  value  in  de- 
termining what  are  the  quick  and  the  slow  sellers  and 
in  putting  the  stock  on  the  most  profitable  basis.  The 
cost  of  control  records  is  an  item  that  keeps  many 
merchants  from  maintaining  them.  This  is  unwise 
economy.  Some  form  of  perpetual  inventory  or  of 
frequent  actual  inventory,  divided  into  departments 
and  classes  of  goods,  with  sales  records  similarly  sub- 
divided, provides  the  basis  for  that  careful  figuring 
of  stock  turnover  without  which  a  merchant  operates 
largely  in  the  dark.  The  dealer  who  does  not  know 
his  stock  turnover  is  hardly  entitled  to  the  name  of 
merchant. 

5.  What  is  profit? — Price  and  profit  policies  in  a 
retail  store  are  subject  to  much  the  same  principles  as 
those  governing  the  price  policies  of  manufacturers 
and  wholesalers.  These  have  been  treated  in  a  pre- 
ceding chapter.  We  are  concerned  now  with  defini- 
tions and  with  the  relation  of  profit  and  selling  price 


I 


318       MARKETING  AND  MERCHANDISING 

to  cost.  To  the  layman,  profit  often  means  the  dif- 
ference between  cost  price  and  seUing  price.  This 
inaccurate  use  of  the  term  is  responsible  for  much 
wrong  thinking  and  much  of  the  unjustified  criticism 
leveled  at  the  merchandising  system.  Business  men 
have  contributed  to  the  difficulty  by  using  the  word 
profit  in  two  senses — ^gross  profit  and  net  profit. 
When  gross  profit  means  the  difference  between  cost 
price  and  selling  price,  it  is  not  profit  at  all.  There 
is  only  one  real  profit,  and  that  is  net  profit — the 
amount  left  for  the  proprietor  after  expense  incident 
to  the  purchase  of  goods  and  to  the  conduct  of  the 
business  has  been  charged  off.  It  would  be  well  to 
discard  entirely  the  phrase  gross  profit  and  to  sub- 
stitute for  it  the  words  margin  or  mark-up.  As 
long  as  business  nomenclature  recognizes  the  use  of 
the  word  profit  to  mean  anything  else  than  net 
profit,  people  will  continue  to  misunderstand  mer- 
chandising and  to  think  that  a  merchant  is  pocketing 
fifty  cents  for  himself  when  he  buys  an  article  for 
fifty  cents  and  sells  it  for  a  dollar. 

6.  Factors  in  selling  prices. — A  retailer's  selling 
price  includes  three  factors— cost  of  the  goods,  all 
expenses  of  doing  business  and  net  profit.  Cost  of 
goods  should  include  incoming  freight  and  drayage. 
Expense  should  include  every  cent  paid  out  for  any 
purpose  in  connection  with  the  business,  except  the 
cost  of  the  goods  laid  down  in  the  store.  A  suitable 
charge  for  depreciation  of  stock  should  be  included 
in  expense.    Expense  should  also  include  compensa- 


TURNOVER,  MARK-UP,  AND  PROFIT       319 

tion  to  the  merchant  and  any  members  of  his  family 
who  work  in  the  store.  Payment  for  their  time  and 
skill  must  be  taken  care  of  before  there  can  be  any 
profit  from  the  business.  The  margin  or  mark-up 
is  the  difference  between  the  laid-down  cost  of  the 
goods  and  the  final  selling  price.  It  consists  of  ex- 
pense and  of  profit — and  expense  is  likely  to  be  much 
the  larger  part  of  the  whole. 

7.  Mark-up. — ^Mark-up  is  figured  in  percentages. 
A  merchant,  knowing  his  expense  of  doing  business 
and  knowing  the  profit  that  he  wishes  to  make  on 
each  transaction,  arrives  at  a  figure  that  can  be  added 
to  every  cost  price  so  as  to  cover  his  expense  and  to 
leave  a  net  profit  after  the  goods  are  sold.  If  an 
article  costs  two  dollars,  a  mark-up  of  fifty  per  cent 
of  cost  produces  a  selling  price  of  three  dollars.  The 
principle  is  simple;  its  apphcation,  however,  is  often 
productive  of  loss. 

8.  Importance  of  a  common  ha^e. — ^Difficulty  arises 
when  there  is  a  failure  to  figure  percentage  of  ex- 
pense, percentage  of  profit,  and  percentage  of  mark- 
up, all  on  the  same  base.  Obviously  percentage  of 
expense  and  percentage  of  profit  can  not  be  added 
together  to  get  percentage  of  mark-up  unless  they 
are  all  percentages  of  the  same  thing — in  the  same 
way  that  it  is  impossible  to  add  one-half  of  a  potato 
and  one-quarter  of  an  onion  and  get  three-quarters 
of  anything.  It  is  strange  that  this  simple  truth 
should  have  been  so  often  neglected  in  retail  merchan- 
dising. 


ni 


I 

m 


320       MARKETING  AND  MERCHANDISING 

Assume  an  average  retail  stock  of  $10,000  cost 
price;  and  on  each  turnover  a  pro  rata  expense  of 
$5,000  and  a  profit  of  $3,000.  The  total  mark-up  is 
$8,000,  and  the  selling  price  $18,000.  The  mark-up 
is  eighty  per  cent  of  the  cost  price,  but  only  forty- 
four  per  cent  of  the  selling  price.  The  expense  per- 
centage is  almost  always  figured  on  selling  price.  In 
the  present  case,  expense  would  figure  approximately 
twenty-eight  per  cent  ($5,000  divided  by  $18,000). 
At  this  point  practice  divides.  In  the  past  many 
dealers  have  figured  profit  as  a  percentage  of  cost 
instead  of  selling  price.  A  profit  of  $3,000  is  thirtj'^ 
per  cent  of  cost  price  but  only  a  little  more  than  six- 
teen per  cent  of  selling  price.  It  is  not  possible  to 
add  twenty-eight  per  cent  of  selling  price  and  thirty 
per  cent  of  cost  price  and  get  a  result  that  means 
anything — and  yet  this  is  what  many  dealers  have 
tried  to  do.     Consider  a  more  simple  problem : 

An  article  costs  four  dollars;  expenses  are  twenty- 
five  per  cent  of  sales;  desired  profit  is  ten  per  cent 
of  cost.  What  is  the  proper  selling  price  and  what  is 
the  percentage  of  mark-up  ?  The  selling  price  would 
be  found  as  follows : 

Cost  $4.00 

Profit  (10%  of  cost)  .40 

This  figure  is  75%  of  the  seU-    $4.40 
ing  price,  the  other  25%  rep- 
resenting expense 

Selling  price  $5.86 


TURNOVER,  MARK-UP,  AND  PROFIT       321 

The  mark-up,  the  difference  between  cost  and  sell- 
ing price,  is  $1.86  or  approximately  46  per  cent  of  the 
cost.  It  is  clear  that  if  we  should  forget  that  the 
10  per  cent  profit  and  the  25  per  cent  expenses  were 
calculated  on  different  quantities  and  should  figure 
on  35  per  cent  advance  over  the  cost  price,  the  selling 
price  would  be  $4.00  plus  35  per  cent  of  $4.00  ($1.40) 
or  $5.40.  But  does  this  give  us  the  desired  profit  of 
40  cents  ?  By  the  terms  of  the  illustration  selling  ex- 
penses were  25  per  cent  of  sales.  Calculating  this 
on  $5.40  we  have  $1.35  and  adding  this  to  the  cost  of 
the  article  we  have  total  of  $5.35.  Thus  our  profit 
has  dwindled  to  5  cents.  This  illustrates  the  dangers 
and  arithmetical  complications  resulting  from  figur- 
ing profits  on  cost  and  expense  on  selling  price,  and 
then  trying  to  find  a  mark-up  that  is  fair  to  both. 
9.  Benefits  of  using  selling  price  as  the  base.— It 
makes  little  difference,  as  far  as  computations  are 
concerned,  whether  both  expenses  and  profits  are 
based  on  cost  or  on  selling  price.  There  is  no  good 
reason,  however,  for  basing  expenses  on  the  cost  of 
the  goods  sold.  It  is  sensible  and  easy  to  base  it 
on  selling  price — one  dollar  comes  into  the  business, 
expenses  eat  up  thirty  cents;  therefore  selling  ex- 
penses are  thirty  per  cent.  To  be  consistent  and  to 
avoid  loss,  profit  percentage  should  be  handled  in 
the  same  way.  After  thirty  cents  have  been  taken 
from  the  incoming  dollar  and  sixty  cents  paid  to 
suppliers  of  goods,  there  remain  ten  cents  as  profit, 
or  ten  per  cent  of  the  selling  price.     The  cost  of 


II 


322       MARKETING  AND  MERCHANDISING 

goods  is  only  one  of  the  costs  of  a  retail  store.  There 
seems  to  be  no  better  reason  for  figuring  profit  as 
a  percentage  of  cost  of  the  goods  than  there  would  be 
for  figuring  it  as  a  percentage  of  the  rent  paid  for  the 
store. 

Altho  the  modern  practice  is  to  figure  both  ex- 
pense and  profit  as  percentages  of  selling  price,  it 
is  not  so  important  that  this  be  done  as  it  is  that  both 
be  figured  on  the  same  base.  Selling  price  as  a  base 
is  favored  because  it  results  in  a  smaller  percentage 
of  proat  than  when  profit  is  figured  on  eost.  The 
smaller  figure  is  preferable  because  it  encourages  the 
dealer  to  add  to  his  laid-down  cost  a  percentage  that 
is  really  essential  to  his  success  and  because  it  tends  to 
correct  the  mistaken  idea  of  employes  and  the  pub- 
lic as  to  the  size  of  the  dealer's  net  return.  Selling 
price  is  the  more  desirable  basis  of  figuring  profit  also 
because  it  requires  the  merchant  to  know  his  actual 
cost  of  doing  business  at  all  times — ^he  is  forced  to 
give  due  consideration  to  expense  as  well  as  to  laid- 
down  cost  in  figuring  his  mark-up. 

10.  How  mark-up  is  figured. — The  merchant  who 
figures  both  expense  and  profit  as  percentage  of  sales 
should  have  at  hand  a  table  to  enable  him  to  trans- 
late percentages  of  selling  prices  into  percentages  of 
cost.  If  expense  is  twenty-five  per  cent  of  sales, 
and  desired  profit  is  also  twenty-five  per  cent  of  sell- 
ing price,  the  mark-up,  figured  on  selling  price,  is 
fifty  per  cent.  Fifty  per  cent  of  selling  price,  how- 
ever, is  one  hundred  per  cent  of  cost.    In  this  case 


TURNOVER,  MARK-UP,  AND  PROFIT       323 

the  cost  price  must  be  doubled  to  cover  cost  of  goods, 
expense  and  desired  profit. 

The  accompanying  table,  or  one  prepared  in  a  sim- 
ilar way,  enables  the  dealer  to  translate  immediately 
given  percentages  of  expense  and  profit  (both  based 
on  sales)  into  the  required  percentage  mark-up  on 
cost.  For  example,  expense  is  twenty-five  per  cent 
and  required  profit  ten  per  cent.  Find  twenty-five 
in  the  first  vertical  left-hand  column  and  ten  in  the 
horizontal  column  at  the  top  of  the  chart.  Draw  a 
horizontal  line  thru  twenty-five  and  a  vertical  line 
thru  ten.  Where  they  meet  will  be  found  the  figure 
fifty-four.  Fifty-four  per  cent  must  be  added  to  the 
cost  of  an  article  to  cover  the  given  expense  and  the 
required  profit.     Proof: 

Selling  price  is  100% 

Expense,  figured  on  selling  price,  is  25% 
Profit,  figured  on  selling  price,  is  10% 


|i 


Total  mark-up,  based  on  selhng  price,  35  % 


The  cost  of  the  goods,  therefore,  must  be     65% 

Assume  the  cost  is  $1.00.     One  dollar  is  65%  of 
$1.54.     The  mark-up  is  fifty-four  per  cent  of  the  cost. 


I 


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324        MARKETING  AND  MERCHANDISING 


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TURNOVER,  MARK-UP,  AND  PROFIT       325 

REVIEW 

What  are  the  two  kinds  of  turnover?     Define  stock  turnover. 

How  is  stock  turnover  figured?  When  should  each  method 
be  used? 

Define  profit. 

What  factors  go  to  make  up  retailer's  selling  price?  What 
should  be  included  under  each  factor? 

How  is  mark-up  figured?  What  mistakes  have  been  made 
in  figuring  it? 

Give  an  illustration  of  the  proper  way  to  figure  it? 


f 


'*  i   I 


m 


CHAPTER  XXI 

BUYING  AND  MERCHANDISE  MANAGEMENT 

1.  Relation  of  buying  and  selling. — Merchandis- 
ing consists  of  two  main  activities — buying  and  sell- 
ing. They  are  equally  important,  just  as  produc- 
tion and  selling  are  equally  important  in  a 
manufacturing  business.  Their  equahty  in  a  manu- 
facturer's organization  is  recognized  by  placing  them 
in  charge  of  coordinate  executives.  In  a  dealer's 
organization  there  is  no  such  division.  It  is  charac- 
teristic of  retail  and  of  wholesale  selling  that  buying 
and  selling  are  generally  under  the  immediate  super- 
vision of  the  same  individual.  There  is  no  technic 
of  manufacturing  to  require  the  attention  of  special- 
ists; goods  are  sold  in  the  form  in  which  they  are 
bought,  and  the  functions  of  studying  demand,  buy- 
ing to  satisfy  demand,  and  bringing  the  goods  to  the 
attention  of  customers  are  so  intertwined  that  they 
can  not  be  separated  in  either  theory  or  practice. 
There  is  an  old  saying  that  goods  well  bought  are 
half  sold.  It  is  equally  true  that  goods  not  well 
bought  are  the  cause  of  loss  rather  than  profit.  Good 
buying  is  fundamental  in  merchandising  success. 

2.  How  much  to  buy. — The  buying  problem  has 

326 


BUYING 


327 


.' ) 


four  phases— how  much  to  buy,  what  to  buy,  when  to 
buy,  and  how  to  buy.  The  problem  of  how  much  to 
buy  is  partly  solved  by  applying  the  principle  of  stock 
turnover.  In  general,  it  is  good  practice  to  keep  on 
hand  the  least  amount  of  goods  that  will  attract  and 
satisfy  trade,  in  order  that  the  stock  investment  may 
be  kept  at  a  minimum  and  the  number  of  stock  turn- 
overs be  raised  to  the  maximum.  Buying  only  for  im- 
mediate needs  is  an  ideal  that  most  merchants  try  to 
realize.  This  does  not  mean  buying  from  hand-to- 
mouth,  without  regard  to  complete  ranges  of  styles 
and  sizes  or  without  due  consideration  to  the  availabil- 
ity of  additional  supplies.  It  means  buying  with  cau- 
tion so  as  to  avoid  as  far  as  possible  the  evils  of  over- 
buying. 

3.  Evils  of  over-buying.— The  first  evil  of  over- 
buying is  the  unprofitable  use  of  capital.  Money 
tied  up  in  stock  is  still  money  even  tho  it  may  look 
like  something  else  on  the  shelves  of  a  store.  No 
dealer  has  access  to  an  unlimited  supply  of  funds. 
His  own  capital  and  his  borrowing  capacity  always 
have  fixed  limits.  He  can  invest  his  available  assets 
and  credit  in  such  a  way  as  to  get  bare  interest,  or  he 
can  put  them  to  work  over  and  over  again.  To 
double  the  turnover  is  the  same  thing  as  doubling  the 
amount  of  stock  without  increasing  the  investment. 
This  is  the  essence  of  good  business.  Slow  turnover 
increases  interest  charges.  The  live  merchant  is  a 
frequent  borrower.  If  the  stock  bought  with  bor- 
rowed money  will  sell  in  three  months,  he  pays  only 


t 


M 


f! 


328       MARKETING  AND  MERCHANDISING 

three  months'  interest;  if  it  sells  in  six  months,  the 
interest  charge  is  doubled. 

Gtoods  are  bought  to  be  sold  at  a  profit.  If  some- 
thing happens  to  reduce  or  eliminate  the  profit,  the 
merchant  loses.  Mark-downs  are  usually  the  result 
of  three  conditions:  too  much  stock  on  hand  at  the 
end  of  a  consuming  season;  changes  in  style  or  de- 
mand that  render  some  of  the  stock  unsalable  at  the 
original  profitable  figure ;  and  physical  deterioration 
caused  by  frequent  handling  or  too  long  a  period  of 
storage.  Over-buying  is  often  the  cause  of  all  these 
conditions. 

Slow-moving  stock  causes  many  direct  losses.  Ex- 
pensive time  is  wasted  in  trying  to  move  it  at  a 
profitable  price.  Rewriting  sales  tickets  and  re- 
arranging goods  for  mark-down  sales  take  time  and 
money.  Shelf  and  storage  room  has  a  definite  value, 
which  is  unprofitably  consumed  unless  used  for  a 
constant  flow  of  rapidly  selling  merchandise. 

Finally,  over-buying  brings  a  store  into  disrepute. 
Fresh  and  timely  goods  are  wanted  by  consumers. 
There  is  a  distinct  loss  measurable  in  dollars  and 
cents  when  the  reputation  of  an  establishment  suffers 
from  unpopular  or  shop-worn  goods. 

4.  Differences  in  turnover  possibilities. — The  pos- 
sibilities of  turnover  differ  for  different  kinds  of 
stores.  Probably  no  jeweler,  for  instance,  can  ever 
approximate  the  fifty-two  yearly  turnovers  of  some 
chain  groceries.  Goods  sold  only  or  chiefly  at  cer- 
tain seasons  must  necessarily  show  fewer  turnovers 


BUYING 


329 


than  those  in  demand  the  year  around.  Neverthe- 
less no  dealer  is  justified  in  thinking  that  his  present 
turnover  can  not  be  increased.  Increased  profit 
thru  increased  turnover  is  a  possibility  for  every  mer- 
chant. 

5.  Turnover  and  quantity  prices. — The  legitimate 
desire  of  the  merchant  to  increase  turnover  by  buy- 
ing frequently  and  in  relatively  small  quantities  is 
sometimes  in  conflict  with  the  equally  legitimate  de- 
sire to  get  a  minimum  price  or  an  especially  favorable 
discount  by  buying  in  large  quantities.  The  compara- 
tive advantages  of  the  two  procedures  are  subject 
to  mathematical  determination.  An  extra  discount 
for  a  quantity  purchase  may  or  may  not  compensate 
for  a  decreased  turnover.  A  merchant  who  knows 
his  normal  rate  pf  turnover  on  the  kind  of  goods 
under  consideration  can  decide  with  reasonable  ac- 
curacy the  extent  to  which  his  turnover  will  be  slowed 
up  by  a  purchase  of  unusual  size.  He  must,  of 
course,  take  into  consideration  all  the  evils  that  might 
result  from  over-buying,  and  then  balance  the  pos- 
sibility of  those  losses  against  the  extra  discount  to 
which  the  quantity  purchase  entitles  him. 

6.  May  turnover  he  excessive? — Despite  the  un- 
questioned benefits  of  rapid  stock  turnover,  there  is 
such  a  thing  as  trying  to  achieve  too  many  turnovers. 
The  carrying  of  too  restricted  a  stock  with  inadequate 
assortments  of  sizes  and  styles,  simply  to  reduce  in- 
vestment in  stock  and  to  increase  turnover,  will 
alienate  trade  and  lose  good-will  to  a  degree  that  will 


330        MARKETING  AND  MERCHANDISING 


BUYING 


331 


^  *l 


speedily  ruin  a  business.  A  store  can  not  do  busi- 
ness unless  it  has  goods  to  sell.  Turnover  is  not  a 
panacea.  Like  any  other  remedy  for  poor  profits, 
it  must  be  used  with  care  and  discretion. 

7.  Buying  seasonal  products. — When  goods  are 
sold  to  consumers  only  at  certain  seasons  of  the  year, 
or  when  seasonal  sales  predominate,  buying  policy 
based  chiefly  on  the  desire  for  rapid  turnover  is  often 
impractical  and  dangerous.  There  are  many  kinds 
of  goods  in  this  class — furniture,  straw  hats,  jewelry, 
rubber  footwear,  clothing,  and  sport  equipment,  to 
name  only  a  few  of  the  outstanding  examples.  The 
marketing  of  seasonal  products  has  long  been  based 
on  the  policy  of  advance  orders  from  retailers,  placed 
months  before  the  beginning  of  the  consuming  sea- 
son and  determined  by  the  retailer's  expectations  of 
seasonal  demand.  During  the  long  period  of  gen- 
erally rising  prices,  this  policy  was  adhered  to  with 
little  variation  in  most  seasonal  industries.  When 
prices  began  to  move  downward,  some  dealers  ques- 
tioned the  soundness  of  the  policy  and  were  tempted 
to  withhold  orders  until  seasonal  demand  prompted 
immediate  purchases.  Advance  orders  for  seasonal 
goods  are  essential  to  the  welfare  of  manufacturers, 
dealers  and  consumers  alike. 

8.  Why  advance  orders  are  necessary. — The  manu- 
facturer of  seasonal  products,  like  every  other  manu- 
facturer, can  produce  economically  and  efficiently 
only  if  his  output  is  relatively  even  thruout  the 
year.     To  schedule  safely  an  even  production,  the" 


machinery  of  distribution  must  keep  pace  with  the 
machinery  of  manufacturing ;  goods  intended  for  con- 
sumption in  December  must  begin  to  move  out  of  the 
factory  many  months  before  that  time.  Without 
undue  risk,  production  can  begin  long  in  advance  of 
consumption  only  if  a  reasonable  amount  of  advance 
orders  are  in  hand.  The  movement  of  goods  thru 
the  channels  of  trade  from  the  raw  material  stage  to 
the  finished  product  on  a  retailer's  shelves  can  not  be 
accomplished  in  a  short  time.  It  takes  months  for  a 
factory's  output  to  take  finished  fotm  and  to  work 
its  way  thru  the  nation's  intricate  distributing  ma- 
chinery. If  the  retailer  is  to  have  seasonal  goods 
when  he  wants  them,  he  must  begin  to  take  them 
long  before  he  needs  them. 

Every  manufacturer  must  largely  depend  on  the 
trade  to  aid  hfm  in  forecasting  consumer  demand  for 
styles,  colors  and  types  of  products.  The  manufac- 
turer of  an  all-year  seller  can  assume  the  risk  of 
consumer  demand  for  himself ;  he  can  put  out  a  trial 
style  and  quickly  withdraw  it  if  it  does  not  meet  with 
popular  favor.  Not  so  with  the  manufacturer  of 
seasonal  products.  Styles  must  be  set  far  in  advance 
of  demand,  and  goods  must  be  produced  in  quantities 
on  the  faith  of  the  producer.  Without  advance  or- 
ders from  the  trade,  he  can  forecast  demand  only  with 
the  greatest  difficulty. 

Seasonal  products  are  subject  to  two  kinds  of 
risk — the  risk  of  unpopularity  of  styles,  and  the  risk 
of  unseasonable  weather  if  the  product  depends  on 


IP 

I 


!  iw 

•  i 


I « 


332       MARKETING  AND  MERCHANDISING 

li 

weather  conditions  for  its  sale.  These  are  risks  which 
properly  are  borne  by  the  whole  industry,  dealers 
as  well  as  manufacturers.  The  dealer  is  just  as 
much  a  part  of  the  industry  as  the  manufacturer,  and 
he  can  not  rightly  place  the  whole  burden  of  risk  on 
the  manufacturer.  He  can  assume  his  part  of  the 
risk  by  estimating  his  own  share  of  demand  and  plac- 
ing advance  orders  to  cover  at  least  a  part  of  his  ex- 
pected requirements. 

Finally,  advance  orders  for  seasonal  products  are 
necessary  for  the  economical  financing  of  manufac- 
turing. Invoices  for  goods  of  this  sort  are  usually 
dated  at  the  beginning  of  the  consuming  season,  with 
liberal  discounts  for  payment  in  advance  of  the  due 
date.  The  dealer  who  accepts  parly  delivery  and 
takes  advantage  of  the  anticipation  discount  helps  to 
provide  the  manufacturer  with  capital  to  run  his 
business  on  the  economical  all-year-around  basis. 
When  the  dealer  is  asked  to  help  the  manufacturer  in 
this  way,  it  is  customary  and  equitable  for  the  manu- 
facturer to  protect  him  with  guarantees  against  price 
decline. 

9.  Results  of  withholding  advance  orders. — ^When 
dealers  withhold  advance  orders  for  seasonal  goods, 
the  first  result  is  to  slow  up  production  and  to  cause 
scarcity  of  goods  during  the  consuming  season. 
Manufacturers  can  not  quickly  adjust  themselves  to 
such  revolutionary  procedure.  Without  advance 
orders,  they  find  themselves  with  no  certain  knowledge 
of  demand,  with  inadequate  operating  capital,  and 


BUYING 


333 


with  a  burden  of  risk  that  they  are  unable  to  assume 
alone.  Goods  are  not  produced  in  sufficient  quantity ; 
those  that  are  produced  can  not  reach  all  consuming 
centers  in  time  for  consumption;  goods  are  scarce 
when  they  are  wanted;  and  increased  prices  are  the 
inevitable  result. 

If  the  withholding  of  advance  orders  continues  and 
manufacturers  adjust  themselves  to  the  new  condi- 
tions, the  adjustment  necessarily  takes  a  form  which 
tends  to  increase  prices.  The  manufacturer  must  do 
three  things— all  of  them  expensive.  He  must  pro- 
vide his  own  warehousing  facilities  scattered  thruout 
the  country  to  take  care  of  the  constant  output  from 
his  factory  and  to  satisfy  the  trade's  last  minute  re- 
quirements; he  must  add  to  his  capital  an  amount 
sufficient  to  /compensate  for  the  advance  payments  on 
early  deliveries  to  dealers;  and  he  must  assume  the 
entire  burden  of  risk  of  unpopular  styles  and  un- 
seasonable weather. 

All  of  these  things  cost  money,  and  the  added 
cost  must  be  added  to  the  price  of  the  product. 
Theoretically  the  consimier's  price  should  be  the  same 
regardless  of  whether  the  manufacturer  or  dealer 
provides  warehousing  facilities,  contributes  capital 
for  the  industry  and  assumes  the  risk  incident  to  the 
business.  Actually  the  dealer  will  not  exact  any 
less  margin  if  he  throws  these  expenses  back  upon  the 
manufacturer.  The  inevitable  result  is  higher  prices 
to  the  trade  and  higher  prices  to  the  consumer.  Ad- 
vance orders  for  seasonal  products  are  necessary. 


II  I* 


834.       MARKETING  AND  MERCHANDISING 


BUYING 


335 


I  ' 


*i^ 


The  withholding  of  them  is  disastrous  and  expensive 
for  all  factors  in  industry.  The  manufacturer  of 
seasonal  goods  does  not  ask  the  dealer  to  bear  all 
the  burden  of  warehousing,  risk  and  the  providing  of 
operating  capital.  He  is  willing  and  able  to  shoulder 
his  share,  which  is  usually  the  major  share.  He  asks 
only  that  the  dealer,  as  an  essential  part  of  the  indus- 
try, take  that  part  of  the  burden  which  rightfully 
belongs  to  him. 

10.  How  to  increase  turnover. — Turnover  is  in- 
creased in  two  ways — increasing  sales  and  decreas- 
ing inventories.  Slow  moving  lines  are  eliminated  or 
subordinated  in  the  stock.  New  and  rapidly  moving 
lines  are  added.  Purchases  are  concentrated  among 
fewer  and  more  profitable  lines.  Careful  watch  is 
kept  so  that  goods  on  hand  will  not  increase  faster 
than  sales.  Salespeople  are  educated  to  make  faster 
sales  and  to  use  all  the  available  aids  of  advertising, 
display  and  consumer  demand.  Stock  limits  are 
established  to  prevent  over-buying.  The  number  of 
competing  lines  in  stock  is  reduced.  It  is  better  to 
serve  well  in  five  lines  by  having  five  stocks  of  suffi- 
cient completeness  to  care  for  average  needs,  bought 
according  to  a  merchandise  plan  built  on  a  knowledge 
of  community  requirements,  at  the  lowest  quantity 
price,  with  deliveries  according  to  seasonal  needs, 
than  in  fifteen  lines,  none  of  which  is  complete  or 
bought  on  advantageous  terms.  A  merchant  is  in 
business  to  give  people  what  they  want  but  it  is  not 
necessary  to  add  greatly  to  stock  investment  by  be- 


ing prepared  to  satisfy  every  unusual  demand  that 
may  make  itself  felt.  The  modern  movement  is 
toward  fewer  competing  lines  and  more  complete 
stocks  in  each  line  carried. 

11.  Buying   by   quotas. — A   good   merchandising 
plan  is  based  on  the  amount  of  business  that  should  be 
done  during  a  season.     This  is  split  up  into  quotas 
for  each  month  for  each  department  of  the  business. 
The  ideal  is  to  clean  the  shelves  at  the  end  of  the 
season.     From  this  basis,  estimates  are  made  of  sales 
and  stocks  on  hand  for  each  week  in  the  season. 
Knowing  what  must  be  bought  and  when  it  should 
be  bought,  the  merchant  allots  to  each  department  for 
each  week  or  month  a  maximum  buying  quota  and,  as 
purchase  orders  go  thru  the  office,  the  purchases  are 
deductecf  from  the  allotment.     Such  a  system  is  use- 
ful if  it  is  not  too  mechanical.     There  must  always 
be  leeway  to  provide  for  unusual  requirements  and 
unforeseen  contingencies.     Properly  organized  and 
liberally    administered,    a    system    of    buying    by 
quotas  is  an  effective  aid  to  stock  control,  without 
which  the  purchases  of  a  large  establishment  can  not 
be  organized  on  a  basis  that  is  fair  to  all  departments 
and  that  insures  the  most  profitable  use  of  the  capital 

of  the  business. 

12.  The  merchandise  department. — In  a  large  re- 
tail store  the  combined  functions  of  buying  and  sell- 
ing are  usually  centered  in  a  merchandise  department. 
The  merchandise  manager  is  the  real  merchant  of 
the  estabhshment.    His  is  the  responsibility  of  judg- 


•I 

1 


336       MARKETING  AND  MERCHANDISING 

ing  demand,  watching  competition,  fixing  buying 
policies  and  supervising  sales.  He  must  watch  gen- 
eral market  conditions,  to  keep  in  touch  with  the 
trend  of  prices  and  to  take  advantage  of  unusual 
offermgs.  He  should  in  person  or  thru  one  of  his 
assistants  visit  the  markets  frequently,  to  strengthen 
the  relations  between  his  establishment  and  his  sources 
of  supply  and  to  be  on  the  lookout  for  values  and 
novelties.  In  larger  department  stores  there  may 
be  many  buyers,  but  they  are  usually  under  the  direc- 
tion of  the  merchandise  manager,  report  to  him,  and 
are  guided  by  him. 

The  merchandise  manager,  or  the  proprietor  if  he 
is  his  own  merchandise  man,  should  make  a  continual 
study  of  those  community  and  trade  conditions  which 
form  the  basis  for  a  complete  market  analysis.     It 
is  necessary  for  him  to  keep  closely  in  touch  with 
competition.     He  may  use  "shoppers"  to  visit  other 
stores,  study  their  offerings,  make  purchases  for  com- 
parison of  values,  and  watch  competing  prices,  ad- 
vertising, and  selling  methods.    A  manufacturer  may 
sometimes  go  his  own  way  with  only  an  infrequent 
close  analysis  of  what  competitors  are  doing.    A  re- 
tailer must  make  a  daily  study  of  competition.     Even 
if  he  serves  a  unique  clientele,  attached  to  him  by 
the  strongest  bonds  of  loyalty,  his  trade  is  secure  only 
if  he  continues  to  serve  at  least  as  well  as  his  com- 
petitors. 

13.  Control  of  merchandise  profits. — Merchandise 
profits  are  controlled  by  the  merchandise  manager  or 


BUYING 


337 


by  the  proprietor  by  watching  slow-selling  items,  and 
by  providing  for  their  automatic  appearance  on  the 
stock  sheets.  If  the  records  clearly  show  slow-sellers, 
means  may  be  taken  to  move  the  goods  by  special 
display  or  special  offer  before  they  have  time  to 
accumulate  to  an  extent  that  results  in  deterioration 
and  slows  up  turnover.  Merchandise  profits  are  also 
controlled  by  a  careful  scrutiny  and  approval  of  all 
purchase  orders  submitted  by  department  heads,  by 
checking  of  invoices  to  prove  that  merchandise  is  billed 
as  ordered,  by  approving  mark-ups  before  the  goods 
are  placed  in  stock,  by  requiring  executive  approval 
of  all  reductions  in  price  before  they  go  into  effect,  by 
watching  the  perpetual  inventory  and  by  frequent 
actual  i;iventories,  and  by  being  certain  that  goods 
in  stock  for  a  certain  arbitrary  length  of  time  come 
up  automatically  for  consideration. 

Buying  and  merchandising  management  in  a  retail 
store  are  intricate  arts.  They  involve  ample  oppor- 
tunity for  loss  when  approached  without  experience, 
without  system,  and  without  discretion  and  judg- 
ment. When  approached  with  the  proper  equip- 
ment of  experience  and  discretion,  they  offer  great 
opportunities  not  only  for  legitimate  profit,  but  also 
for  real  service  to  the  consuming  public. 

REVIEW 

What  are  the  four  phases  of  the  buying  problem? 
What  are  the  results  of  over-buying? 

Discuss  the  advantages  of  quick  turnover  as  compared  with 
trade   discounts   for  quantity  buying. 


^gggM 


338       MARKETING  AND  MERCHANDISING 


What  limits  turnover  as  a  buying  policy? 

Why  does  the  manufacturer  have  to  be  protected  by  advance 
orders  ?  What  efFect  has  it  upon  the  manufacturer  when  orders 
are  withheld? 

How  is  turnover  increased? 

Discuss  the  advantages  of  buying  by  quota. 


1 


CHAPTER  XXII 

THE  COST  OF  COMPETITIVE  SELLING 

1.  Manufacturing   costs  and  selling   costs.— The 
price  that  the  consumer  pays  for  manufactured  goods 
depends  primarily  on  the  cost  to  manufacture  and  on 
the  cost  to  sell.     Before  the  beginning  of  the  factory 
system  of  industry  the  cost  to  manufacture  was  rel- 
atively high  and  the  cost  to  sell  was  negligible.     The 
artisan  working  in  his  own  home  or  shop  made  little 
more  than  could  be  sold  to  his  neighbors  or  to  near- 
by dealers  and  he  incurred  httle  expense  in  sellmg 
it.    With  the  beginning  of  the  factory  system,  mass 
production  greatly  reduced  the  unit  manufacturing 
cost  and  increased  the  quantity   of  manufactured 
goods.     For  a  while,  selling  continued  to  be  a  rela- 
tively unimportant  problem.     The  markets  of  the 
world  were  eager  for  goods,  and  it  took  the  output 
of  the  factories  many  years  to  catch  up  with  insistent 
demand.     With  the  gradual  increase  of  production 
this  condition  changed.     Competition  arose  to  make 
it  more  difficult  for  the  individual  manufacturer  to 
sell  his  output.     All  the  developments  of  inventive 
genius  and  of  the  engineering  sciences  that  have  made 
the  nineteenth  and  twentieth  centuries  eras  of  great 
material  progress  have  operated  to  increase  the  sup- 

339 


I 


I 


It 


3*0       MARKETING  AND  MERCHANDISING 

ply  of  manufactured  goods  and  to  decrease  the  cost 
of  production.  These  developments  have  brouffht 
manufactured  products  within  the  reach  of  constantly 
mcreasmg  multitudes,  but  they  have  also  multiplied 
the  seUing  problems  of  the  manufacturer. 

2.  The  rise  of  public  interest  in  selling. — For  many 
years  the  gradual  increase  of  the  selling  cost  per 
unit  was  more  than  matched  by  a  decrease  in  the 
manufacturing  cost  per  unit.     As  long  as  the  ten- 
dency of  prices  was  downward,  the  net  result  of  the 
interplay  of  production  costs  and  of  selling  costs  was 
so  satisfactory  that  little  public  attention  was  centered 
on  the  cost  of  the  selling  process.     No  one  can  say 
that  the  end  has  been  reached  in  the  movement  to 
increase  quantity,  improve  quality,  and  decrease  the 
cost  of  manufacturing,  yet  it  is  reasonable  to  believe 
that  this  movement  will  be  less  rapid  in  the  future 
than  in  the  past.     If  that  is  the  case,  reduced  selling 
prices,  except  as  they  result  from  lowered  costs  of 
raw  material  and  labor,  must  depend  largely  on  re- 
ductions in  the  cost  of  selling.     The  realization  of  this 
situation  has  centered  puMic  attention  as  never  be- 
fore on  the  actual  and  imaginary  wastes  and  ineffi- 
ciencies in  selling.     It  is  the  duty  of  every  manufac- 
turer and  distributor  who  beheves  in  the  competitive 
system  of  industry  to  justify  that  system  by  bring- 
ing to  bear  upon  the  problems  of  selling  the  same 
constructive  thought  that  has  brought  manufacturing 
to  its  present  state  of  efficiency. 
3.  Reasons  for  high  selling  expense. — The  cause 


COST  OF  COMPETITIVE  SELLING 


341 


of  high  selling  costs  is  found  partly  in  the  great  ex- 
pansion of  markets.  Large-scale  production  has 
forced  manufacturers  to  look  far  afield  for  their  con- 
sumers. Selling  costs  increase  in  direct  proportion 
to  the  distance  between  factory  and.  consumer. 
Chiefly,  however,  increased  selling  costs  are  due  to 
increased  competition.  The  greater  the  number  of 
manufacturers  who  seek  business  in  a  given  market, 
the  more  each  one  is  likely  to  spend  to  entrench  his 
goods  in  popular  favor.  Disproportionate  attention 
to  production  processes  has  also  permitted  selling 
costs  to  rise ;  every  business  operation  must  be  watched 
with  the  utmost  care  if  its  cost  is  to  be  kept  at  a 
minimum.  Lastly,  selling  costs,  like  all  other  costs, 
were  tremendously  increased  by  the  conditions  grow- 
ing out  of  the  Great  War. 

4.  Need  of  reductions. — Today  it  often  costs  more 
to  sell  goods  than  to  make  them.  A  consumer's  price, 
two,  three,  or  four  times  the  factory  cost  is  not  un- 
usual. Out  of  every  dollar  taken  in  by  a  dealer, 
it  is  not  uncommon  for  forty  or  fifty  cents  to  go  to 
pay  the  cost  of  doing  business  and  to  cover  the 
dealer's  profit.  Many  of  these  conditions  can  not  be 
corrected.  High  selling  costs  are  inherent  in  the 
nature  of  many  businesses.  But  no  business  has  a 
right  to  take  its  high  selling  costs  for  granted.  No 
selling  cost  is  justified  simply  because  it  exists. 
We  have  long  ago  abandoned  tradition  as  a  criterion 
of  manufacturing  efficiency,  and  it  is  high  time  that 
tradition  as  the  sole  guide  in  selling  procedure  be 


'4 


IkniillfiiJiWML 


Hgggl 


II 


MARKETING  AND  MERCHANDISING 

forever  cast  aside.  Every  step,  every  activity  in 
the  selling  process  must  be  subjected  to  the  careful 
scjTutiny  of  enlightened  self-interest.  The  manufac- 
turer who  fails  to  do  his  part  in  reducing  the  spread 
between  factory  cost  and  consumer's  price  is  giving 
aid  and  comfort  to  those  enemies  of  our  present  so- 
ciety who  seek  to  substitute  for  competition  the 
unworkable  and  destructive  doctrine  of  universal  com- 
munism. 

* 

5.  How  reductions  may  he  made.— The  method  of 
reducing  cost  of  selhng  must  differ  with  each  class  of 
industry  and  with  each  separate  business  enterprise. 
Some  general  suggestions,  however,  are  applicable  to 
most  manufacturers  and  to  many  distributors.  The 
first  problem  is  to  reduce  the  actual  outlay  for  selling 
expenses.  The  second  is  to  reduce  the  percentage 
of  selhng  expense  to  sales  by  increasing  the  efficiency 
of  the  selling  process.  The  two  problems  are  not 
distinct.  The  solution  of  one  often  carries  with  it 
the  solution  of  the  other. 

6.  More  economical  sales  channels. — In  reducing 
the  actual  outlay  for  selling  expenses  the  first  step  is 
for  each  seller  to  scrutinize  his  sales  channels,  and  to 
find  the  shortest  route  to  the  consumer  that  is  con- 
sistent with  service  and  economical  distribution.  This 
does  not  mean  eliminating  the  middleman;  we  have 
found  that  the  middleman  is  an  absolute  essential  in 
many  industries.  It  may  mean,  tho,  eliminating 
some  middlemen  in  some  industries  and  in  changing 
the  functions  of  others. 


COST  OF  COMPETITIVE  SELLING 


343 


7.  iS'faw<Zar<2iza<iow.— Standardization  of  sizes  and 
styles  offers  an  important  opportunity  for  reducing 
selling  expenses.  One  seller  found  that  ninety  per 
cent  of  his  business  was  done  on  fifteen  per  cent  of  the 
goods  he  carried  in  stock.  Where  such  a  condition 
exists,  it  may  be  neither  possible  nor  expedient  to 
ehminate  the  eighty-five  per  cent  of  slow  sellers,  but 
there  is  certainly  a  chance  to  make  some  adjustments 
that  will  tie  up  less  capital  and  increase  stock  turn- 
over. 

8.  Increased  turnover. — A  universal  application  of 
the  principle  of  small  stocks  and  quick  turnover  will 
do  much  to  decrease  selling  costs.  Perhaps  the  dis- 
regard of  this  fundamental  of  successful  merchandis- 
ing has  been  the  most  important  single  cause  of  high 
sales  expenses.  There  is  scarcely  a  business  that  can 
not  in  some  degree  reduce  its  stock  investment  and 
thereby  increase  the  rapidity  of  its  turnover. 

9.  Elimination  of  unnecessary  service.— Many  ex- 
pensive items  of  service  have  grown  out  of  the  desire 
of  one  manufacturer  or  dealer  to  outstrip  his  com- 
petitor and,  being  adopted  by  all  competitors,  have 
become  burdensome  loads  on  industry  and  on  the  con- 
sumer. Unjustified  extension  of  credit,  unreason- 
able free  delivery  and  undue  provisions  for  the  enter- 
tainment and  pleasure  of  customers  have  fastened 
heavy  burdens  on  many  businesses.  There  is  always 
a  temptation  to  base  competition  on  these  extraneous 
forms  of  service.  It  is  time  that  there  was  a  general 
reahzation  that  real  service  to  the  customer  consists 


t* 


344       MARKETING  AND  MERCHANDISING 

of  courteous  treatment,  inteUigent  buying  aid,  and 
-quality  goods  at  minimum  prices  and  in  some  in- 
stances help  to  the  customer  in  the  use  of  the  goods 
purchased. 

10.  Better  planning. — Reductions  in  selling  ex- 
penses are  possible  by  providing  for  better  planning 
in  the  use  of  samples,  better  routing  of  salesmen, 
careful  comparison  of  means  of  conveyance  of  sales- 
men and  their  equipment,  the  elimination  of  competi- 
tion within  an  organization  and  by  intensive  study 
of  every  item  that  absorbs  any  of  the  outlay  for  sales 
expenses. 

11.  Need  of  more  effective  sales  management. — 
Actual  reduction  of  selling  expenses  is  one  phase  of 
the  problem.     The  other  is  reduction  of  the  percent- 
age of  selling  expenses  as  measured  against  sales. 
The  solution  of  the  second  phase  of  the  problem  is 
found  in  better  sales  management.     We  have  pro- 
gressed a  long  way  since  the  time  when  a  new  sales- 
man was  hired  in  the  morning,  interviewed  by  one  or 
two  executives,  and  sent  out  in  the  afternoon  with 
a  sample  case,  a  route  list,  and  the  parting  in  i  unction 
to  keep  down  his  expenses-but  we  have  still  far  to 
go.     The  ratio  of  sales  expense  to  sales  volume  can 
be  reduced  by  more  careful  and  scientific  selecting  and 
training  of  salesmen,  by  the  development  and  use  of 
systems  of  compensation  that  induce  the  salesmen  to 
get  best  results  at  minimum  costs,  by  market  analysis 
that  permits  the  accurate  fixing  of  quotas  and  the 
most  economical  and  effective  use  of  the  salesmen's 


COST  OF  COMPETITIVE  SELLING  345 

time  and  efforts,  by  better  organization  of  territories 
and  working  plans  for  the  sales  force,  by  more  care- 
fully planned  advertising  based  on  every  aid  that  psy- 
chology and  experience  can  bring  to  bear  upon  the 
problems  of  mediums,  copy,  and  display,  by  the  use  of 
methods  that  will  prepare  the  way  for  the  salesmen 
and  conserve  their  valuable  time,  by  combining  in  the 
most  effective  way  appeals  by  mail  with  appeals  by 
salesmen,  and  by  making  every  possible  effort  to  re- 
duce the  tremendous  loss  of  salesmen's  time  in  indus- 
tries characterized  by  seasonal  demand. 

12.  The  seller's  responsibility  .—When  sales  ex- 
penses are  high  and  distributor's  profits  are  narrow- 
ing, it  is  the  natural  tendency  for  dealers  to  seek  in- 
creased discounts  from  manufacturers.     This  is  not 
the  way  to  decrease  selling  prices.    Increased  dis- 
counts only  add  to  the  ultimate  burden  of  the  con- 
sumer.    On  manufacturer  and  dealer  alike  there  rests 
the  vital  duty  of  combing  selling  processes  until  the 
last  shred  of  waste  and  inefficiency  disappears.     This 
is  the  task  of  the  era  on  which  we  are  now  entering. 
On  the  success  of  the  business  world  in  solving  the 
problem  of  decreased  selling  cost  will  partly  depend 
the  permanency  of  our  industrial  and  social  system. 
13.  Is  competition  an  evil?— The  high  cost  of  sell- 
ing is  not  a  good  reason  for  an  indictment  of  the 
present  marketing  system,  altho,  if  permitted  to  con- 
tinue unchecked,  it  may  be  used  as  an  excuse  for 
such  an  indictment.     Criticisms  of  the  competitive 
system  of  selling  are  the  natural  result  of  the  growing 


I 


846       MARKETING  AND  MERCHANDISING 

public  consciousness  of  marketing  machinery.  A 
knowledge  of  the  technic  of  selling  is  no  longer 
the  exclusive  prerogative  of  the  manufacturer  and 
merchant.  The  wheels  of  the  marketing  machine  re- 
volve in  plain  sight  of  every  one  who  cares  to  watch 
them.  Advertising  and  the  insistent  appeals  of  mul- 
titudes of  salesmen  have  brought  the  mechanics  of 
selling  into  pubhc  prominence.  It  is  not  strange  that 
all  this  machinery  should  have  drawn  the  atten- 
tion of  those  who  believe  something  is  wrong 
with  the  present  organization  of  industry,  and  who 
seek  to  find  the  remedy.  It  is  charged  that  the  large 
investments  in  advertising  are  responsible  for  high 
prices;  that  there  are  too  many  salesmen,  too  many 
middlemen,  too  many  appeals  to  the  pubhc,  and  too 
much  buying;  that  the  world  is  living  beyond  its 
means,  and  that  this  or  that  phase  of  marketing  is 
chiefly  to  blame. 

14.  Two  kinds  of  criticism. — It  is  important  that 
manufacturers  and  merchants  should  be  able  to  re- 
ply to  these  criticisms,  and  that  they  should  be  sure 
in  their  own  minds  that  their  seUing  activities  are  not 
out  of  tune  with  the  trend  of  the  times.  They  will 
have  to  meet,  in  general,  two  types  of  criticism :  one, 
that  any  kind  of  intensive  selling,  whether  carried 
on  by  advertising  or  by  salesmen,  must  necessarily  in- 
crease the  price  charged  for  the  article  so  sold;  and 
the  other,  that  competitive  selling  of  any  sort  is  waste- 
ful, wrong,  and  a  burdensome  outgrowth  of  an  unwise 
capitalistic  system. 


COST  OF  COMPETITIVE  SELLING  34-7 

15.  Identical  efects  of  advertising  and  personal 
selling.— The  charge  that  intensive  selling  necessarily 
increases  the  price  of  the  article  sold  is  usually  leveled 
at  advertising.  This  is  illogical.  Advertising  and 
personal  salesmanship  must  stand  or  fall  together. 
In  principle,  the  telling  of  a  sales  story  to  ten  thou- 
sand people  at  a  time  by  a  printed  advertisement  is 
no  different  from  the  telling  of  the  story  to  each  pos- 
sible buyer  in  turn,  either  over  the  counter  of  a  re- 
tail store  or  by  a  salesman  calling  on  the  prospective 
buyer.  The  effect  of  intensive  selling  on  the  selling 
price  must  be  the  same  in  kind,  altho  perhaps  not  in 
degree,  no  matter  what  method  of  intensive  selling 

is  used. 

/  16.  Influence  of  intensive  selling  on  retail  prices. 
— In  a  retail  store,  properly  directed  intensive  selling 
lowers  selling  prices  instead  of  raising  them.  A  man 
with  an  investment  in  stock  of  $10,000,  may  make 
sales  of  $25,000,  a  year,  we  will  say,  without  adver- 
tising and  without  sales  assistance.  If  he  spends  one 
or  two  thousand  dollars  for  an  additional  clerk  and 
for  good  advertising,  he  may  be  able  to  increase  his 
annual  sales  to  $40,000,  Instead  of  a  stock  turnover 
of  two  and  one-half  times  he  has  a  four  times  turn- 
over of  his  stock  investment.  When  he  does  this,  he 
can  afford  to  take  a  smaller  profit  on  each  dollar's 

worth  of  goods  sold. 

Another  saving  is  in  expense.  Every  article  sold 
must  bear  a  certain  charge  for  the  expenses  of  run- 
ning   the    store — rent,    labor,    administration,    etc. 


I 


i 


348       MARKETING  AND  MERCHANDISING 

Many  of  these  expenses  remain  the  same,  regardless 
of  considerable  increases  in  the  amount  of  sales :  some 
of  them  increase  with  the  sales,  but  not  proportion- 
ately—advertising is  such  an  expense.  With  the  in- 
creased sales  caused  by  effective  intensive  selling,  each 
dollar  taken  in  bears  a  decreased  proportion  to  the 
total  expense  of  doing  business.  Selling  prices  can 
be  lowered  to  the  extent  of  this  saving.  Because  in- 
tensive selling  means  increased  sales,  the  merchant  is 
able  to  get  minimum  prices  on  his  quantity  purchases, 
and  to  pass  on  this  saving  to  his  customers. 

The  beneficial  effect  of  intensive  selling  on  retail 
prices  is  not  a  matter  of  theory.  It  has  been  ex- 
perienced by  every  consumer.  The  buying  public 
does  not  look  for  bargains  in  the  sleepy  store  on  a 
side-street,  unadvertised,  where  the  occasional  cus- 
tomer must  rummage  thru  an  ill-displayed  stock  to 
find  what  he  wants.  To  get  minimum  prices  he  pat- 
ronizes the  big,  busy,  well-advertised  store,  manned 
by  a  sufficient  staff  of  efficient  salespeople  to  make 
the  process  of  buying  as  quick  and  as  economical  as 
possible. 

17.  Effect  of  the  manufacturer's  activities. — Con- 
sumers profit  from  the  manufacturer's  intensive  sell- 
ing m  much  the  same  way  as  they  profit  from  the 
advertising  and  effective  salesmanship  of  the  mer- 
chant. Good  advertising  and  good  selling  by  a 
manufacturer  tend  to  keep  prices  down.  They  result 
in  increased  sales,  and  increased  sales  make  possible 
the  economies  of  a  large-scale  production,  lowered 


COST  OF  COMPETITIVE  SELLING  319 

costs  by  reason  of  increased  purchases  of  raw  material, 
better  methods  made  possible  by  the  employment 
of  expert  operatives  and  supervisors  and  the  use  of 
labor-saving  machinery. 

18.  Intensive  selling  reduces  the  unit  cost  to  sell. — 
The  most  important  result  of  the  manufacturer's  in- 
tensive selling  methods  is  a  reduction  of  the  unit  cost 
to  sell.     As  an  illustration  of  the  effect  of  active  seek- 
ing for  business,  consider  advertising  alone.     Every 
article  must  bear  a  proportion  of  the  cost  to  sell.     If 
the  total  selling  expense  is  high  and  the  sales  small, 
the  price  must  be  fixed  accordingly ;  but  if  thru  an  ex- 
penditure for  advertising  the  sales  can  be  greatly  m- 
creased,  the  proportion  between  selling  expenses  and 
sales  may  be  so  changed  that  the  price  can  be  de- 
creased.    Suppose,  without  advertising,  a  manufac- 
turer can  sell  10,000  units  of  his  product  at  a  selling 
cost  of  $5,000.     Each  article  sold  must  bear  a  sell- 
ing expense  of  fifty  cents.     Suppose,  now,  he  adds 
an  expense  of  $2,500  for  advertising,  and  as  a  result 
sells  20,000  units.     His  total  selling  cost  is  increased 
to  $7,500,  but  the  unit  selling  cost  is  only  thirty-seven 
and  one-half  cents.    Here  is  the  real  economy  of 
advertising  and  it  usually  goes  hand  in  hand  with  a 
lessened  unit  charge  for  overhead  expenses. 

19.  Who  pays  for  the  advertising? — These  are  not 
mere  theoretical  savings  effected  thru  advertising  and 
large-scale  personal  salesmanship.  Business  history 
is  full  of  instances  of  nationally  known  manufac- 
turers, who,  in  periods  of  generally  rising  prices,  have 


350        MARKETING  AND  MERCHANDISING 

been  able  to  retard  the  advancing  prices  of  their  own 
products  because  they  had  established  markets  of 
sufficient  size  and  stabihty  to  enable  them  to  effect 
economies  in  manufacturing  and  in  selling.  Good 
advertising  and  effective  personal  selling  do  not 
really  cost  anything.  They  must  be  paid  for,  but 
they  are  not  an  improductive  burden  on  any  one. 
To  ask  "Who  pays  for  the  advertising?"  is  like  ask- 
ing "Who  pays  the  rent  of  the  store?"  or  "Who  pays 
the  salary  of  the  clerk  behind  the  counter?"  They 
are  all  selling  expenses  which  are  absorbed  in  the 
business,  which  are  required  by  competition  and  which 
often  permit  lower  prices  to  the  consumer  than  would 
be  possible  without  them. 

20.  The  sodalisfs  point  of  view. — Another  type  of 
criticism  of  selling  expense  involves  the  charge  that 
all  competitive  selling  is  an  economic  waste — ^that  it 
is  a  tax  on  society.  It  is  charged  that,  altho  an  in- 
dividual article  may  not  have  its  price  increased  thru 
advertising  and  intensive  selling,  when  two  or  ten 
or  a  thousand  competing  articles  are  in  the  field  and 
when  they  are  pushed  by  strongly  competitive  adver- 
tising and  salesmanship,  the  cost  of  selling  each  one 
is  necessarily  more  than  it  would  be  if  this  strenuous 
competition  did  not  exist.  The  critic  who  inveighs 
in  this  way  against  all  competitive  selling  is  voicing 
the  theory  of  socialism.  He  would  deny  to  the  in- 
dividual the  right  to  enter  and  to  conduct  any  busi- 
ness that  attracted  him.  He  would  substitute  the 
absolute  authority  of  the  state  for  the  inclinations  of 


COST  OF  COMPETITIVE  SELLING 


351 


the  individual.  Communism — governmental  monop- 
oly in  each  line  of  business — ^would  take  the  place  of 
capitahsm  and  private  initiative  based  on  the  natural 
desire  for  legitimate  material  profits. 

21.  Competition  and  civilization. — This  is  not  the 
place  to  discuss  communism  versus  capitalism — state 
monopoly  versus  private  initiative  and  competitive 
seUing.  We  can  only  suggest  the  majority  opinion 
that  the  present  method  of  doing  business  is  necessary 
if  people  are  to  continue  to  use  their  brains  to  pro- 
duce better,  cheaper,  more  convenient  goods  of  all 
kinds.  Inventive  genius  is  best  fostered  by  holding 
out  to  the  inventor  the  opportunity  to  get  such  reward 
as  he  can  induce  the  public  to  give  him  in  the  open 
market.  If  it  were  not  for  competition  and  the 
necessity  of  adopting  intensive  selling  measures  in 
order  that  the  inventor  could  get  his  financial  reward, 
the  public  might  be  very  slow  in  finding  out  about  a 
new  product.  A  man  who  has  something  to  sell  that 
he  thinks  will  satisfy  a  want  of  society — something 
that  will  make  life  easier  or  happier  or  better — can 
not  hide  his  goods  if  he  wants  to  get  his  reward. 
Competition  is  an  educator ;  it  carries  the  message  of 
new  goods,  new  methods,  new  conveniences,  new 
luxuries  to  the  farthermost  points  of  the  earth,  and 
it  does  it  quickly,  effectively  and  economically.  It 
encourages  the  spirit  of  cooperative  individualism 
which  has  brought  the  world  from  savagery  to  the 
heights  of  civilization.  With  all  its  inescapable  in- 
equalities, competition  has  lifted  mankind  out  of  the 


I 


362       MARKETING  AND  MERCHANDISING 

I:: 

darkness  of  barbarism  and  has  enabled  the  individual 
to  aspire  to  those  achievements  which  have  been  the 
mile-stones  in  the  progress  of  the  race. 

22.  Facing  the  facts. — We  are  living  under  a 
system  of  competition*  and  capitalism.  The  fact 
that  it  continues,  proves  that  most  people  want  it  to 
continue.  It  is  a  system  that  permits  a  man  to  se- 
lect his  own  business — a  system  that  does  not  by  law 
limit  the  number  of  people  who  engage  in  any  given 
industry,  and  which  must,  therefore,  permit  any  one 
in  any  business  to  solicit  trade  in  any  way  consist- 
ent with  honesty  and  gcfod  taste.  Admit  the  legit- 
imacy of  the  system,  and  we  must  refrain  from  crit- 
icizing any  honest  attempt  to  compete  for  business 
under  the  system.  No  manufacturer  or  dealer,  for 
fear  that  intensive  selling  may  cast  a  burden  on 
society,  is  called  upon  to  discontinue  his  advertising, 
draw  in  his  salesmen,  tear  down  his  sign,  board  up 
his  windows  and,  with  his  goods  carefully  out  of 
sight  for  fear  they  might  encourage  buying,  do  busi- 
ness with  intending  customers  thru  a  hole  in  the 
wall! 

23.  Conclusion. — Dishonest  competitive  methods 
must  go,  and  practices  that  are  repugnant  to  public 
morals  and  public  taste  must  be  eliminated.  The 
competitive  system  will  be  strengthened  when  all 
manufacturers  and  merchants  unite  to  purge  their 
methods  of  all  practices  which  bring  selhng  into  dis- 
repute and  which,  thru  carelessness  or  design,  tend 
to  increase  the  burden  on  the  consumer.     No  man- 


COST  OF  COMPETITIVE  SELLING 


353 


ufacturer  or  dealer  who  uses  the  great  tools  of  ad- 
vertising and  of  personal  salesmanship  in  the  thou- 
sands of  ways  that  good  sense,  good  taste  and  good 
business  suggest,  with  an  honest  desire  to  deal  fairly 
with  competitors  and  with  the  public  and  with  intent 
to  reduce  selling  costs  to  a  minimum,  need  apologize 
for  his  activities  or  fear  that  he  is  doing  anything 
save  that  which  is  for  the  best  interests  of  society. 

REVIEW 

What  changes  were  made  in  manufacturing  costs  by  the  rise 
of  the  factory  system? 

What  has  brought  about  high  selling  costs?  How  may  these 
costs  be  reduced? 

Discuss  the  charges  brought  against  the  competitive  system 
of  selling.     How  would  you  meet  them? 

What  effect  should   intensive   selling  have  on  retail  prices? 

How  does  the  consumer  profit  by  it? 

What  effect  does  advertising  have  on  selling  price? 

Criticize  the  socialist's  view  toward  competition.  What  is 
your  own  view  regarding  it? 

Note:  Numerous  questions  of  business  practice  and  procedure  are 
discussed  in  detail  in  the  Modern  Business  Reports.  The  current  list 
will  show  those  which  are  especially  related  to  this  volume.  Among 
them  may  be  mentioned: 

53  Advertising  and  Selling  Methods  of  Public  Service  Corporations 

60  Laying  Out  a  Plan  of  Investigation  to  Increase  the  Sales  Effi- 

ciency of  Department  Store  Employes 

61  Manufacturers'   Aids   to   Retailers  in  Marketing  Goods 
72  Mail  Campaigns  for  Retail  Stores 

74  Retail   Delivery   Costs   and   Methods 

81  Buying  Systems   for  general  Mail-Order  Houses 

83  Service  and  Display  as  Aids  in  Retail  Selling 

88  The  Organization  of  the  Merchandise  Office  in  a  Department  Store 


in 


INDEX 


Advertised  Goods, 

Benefits  to   dealer  of,   255;    Opposi- 
tion   to,    257;    Dealers*    opposition 
to,  260 
Advertised  vs  Unadvertised  Goods, 

Gross  profits  on,  260 
Advertising, 

Defined,  1;  As  aid  to  selling,  195; 
Organization  of,  by  manufacturer, 
200;  Increases  values  of  trade- 
marks, 205 ;  Manufacturers'  inter- 
est in,  248;  Dealers*  interest  in, 
249;  Word-of -mouth,  252;  Lim- 
itation to  possibilities  of,  254; 
And  quality,  256;  Direct-by-mail 
as  aid  to  salesmen,  288;  Purposes 
of,  294;  Local,  for  dealer,  298; 
To  secure  dealers  cooperation, 
298;  Thru  the  dealer,  298;  For 
dealer,  allocation  of  expense,  299 ; 
Policy  for  retailer,  308;  And  per- 
sonal selling,  347;  Who  pays  for 
it?  349 
Advertising  Campaigns, 

Method  of  operation,  294 
Agents, 

Relation  to  jobber,  16;  Limitation 
of,  102;  Relation  to  principal, 
102;  Fields  found  in.  103;  Mid- 
dlemen applied  to,  104;  Misuse  of 
word,  104 
Appeals, 

Personal  and  family  pride,  176; 
Personal  and  family  welfare,  177; 
Educational,  177;  Convenience, 
177;  Comfort,  178;  Welfare, 
178;  Ambition,  179;  Economy, 
179;  Social,  180;  Direct  or  in- 
direct, 181;  Positive  and  nega- 
tive, 182 
Atlantic  and  Pacific  Tea  Company, 

Statistics  on,  47 
Auction, 

Commodities    sold   at,    112;    Lessen- 
ing importance  of,  112 


Brand, 

Buying  by,  consumers,  251 


355 


Brand  Consciousness,  142:250 
Brandeis,  Louis  D., 

On  price  maintenance,   280 
Broker, 

Relation  to  jobber,  16;  Merchandise, 
106;   Regular,   106;    Casual,   107; 
Functions  of,  in  cotton  trade,  109 
Bulk  Sales,  137 
Business, 

Analysis  of,  130;  Functions  of,  132 
Business  Conditions, 

As  guides,  156 
Buyers, 

Time     of     entering    markets,     156; 
Habits  of,  158 
Buyers'    Strike, 

Effect  on  mail-order  houses,   75 
Buying, 

Problem    of,    phases     in,     326;     By 
quota,    335;    Intricate    nature    of, 
336 
Buying  and  Selling, 

Equality   of,    in    manufacturer's    or- 
ganization, 326 
Buying  Seasons,  154 

1 

Canvasser, 

When  expedient  to  use,  10;  Use  of, 
by  manufacturers,  10;  Difference 
from  specialty  salesman,  10; 
Modern   methods   applied   to,    11 

Carton 

See  Package 

Catalog  House, 

See  Mail-Oxder  Selling 

Chain  Store, 

As  type  of  retail  store,  15;  Defini- 
tion of,  46;  Development  of,  46; 
Viewpoint  of  manufacturer,  46; 
Viewpoint  of  jobber,  46;  View- 
point of  retailer,  46;  As  regarded 
by  consumer,  46;  Field  of  opera- 
tion, 47;  In  grocery  field,  47; 
Traditional  kinds  of,  48;  Semi- 
chains,  48 ;  Consumers*  Coopera- 
tive retail,  48;  Financial  strength 
of,  49;  Advantages  of  location, 
49;    Opportunities  to  standardize, 


i( 


356 


INDEX 


80;    Overcoming   evils    of    etand- 
ardization.      51;      Dangers      from 
•tandardization.     51;     Advantage 
in    organization,    52;    Advertising 
advantages     of,     52;     Accounting 
system,  an   asset   of,    53;    Buying 
advantage  of,  53;   Buying  organi- 
zation  of,   54;    As   source   of   low 
selling    prices,    55;     Reasons    for 
low  expenses  of.  55 ;  Low  expense 
basis  of  operation,   55;   Low  prof- 
Its  and  quick  turnovers,  56;   Im- 
portance of  price  appeals,  57;  In 
times    of    depression,    57;    Weak- 
nesses of.   58;   Competition  of  in- 
dependents   with,    59;    Attitude   of 
manufacturer    toward,    60;    Place 
of    in    manufacturer's    plans.    61; 
Direct  buying  of.  85 ;  Manuf actur- 
ers.  190 
Clarts, 

Of  selling  points,  183 
C1*M  Appeal,  150 
Oliyton  Anti-Tmst  Law, 

As     applied     to     exclusive     agency 
agreements.  220 
Commission  Merciiaiit. 

Relation  tt>  jobber,  'l6 ;  Function  of. 
104;  Differs  from  agent,  104;  In- 
accurate use  of  term,  105;   Exer- 
cise of  banking  function,  105 
Omiip«titioii, 

^oblem  of.  161;  Relative  strength 
of  competitors.  162;  Selling  meth- 
ods in,  163;  Building  up  selling 
appeal  against  competitors,  163; 
As  a  high  cost  of  sales,  345;  Its 
place  in  civilization,  350;  As  part 
of  capitalistic  system,  351 ;  Elimi- 
nation  of  dishonest.  351 

Coniignment  Sales. 
Unpopularity  of.  290 

Chmsnmer. 

Definition  of,  9;  Relation  to  manu- 
facturer, 9;  Selling  direct  to,  9; 
Attitude  toward  chain  store,  46; 
Responsive  to  selling  efforts.  154- 
Methods  of  buying,  157;  Sales 
channels  used  by,  158;  Direct  or 
indirect  appeal  to.  181;  Prices. 
269;  Benefits  from  intensive  sell- 
ing, 348 

Clonsmiior  Acceptanco, 

Function  of  advertising  in,  262 
CNmsiUBor  Demand. 

And  national  advertising,  261 
Consviiiers'  Cooperative  Retail  Chains. 

Sm  Chain  Stores 
Consumer's  Point  of  View.   174, 

Tie  product  and;  Appeal  to  senseSi 


?7fi:  ^^"^"«'  ^^^  family  pride. 
,;!;'  -Personal  and  family  welfare, 
1T7;  Convenience,  177;  Educa- 
iSa'  ^'i'^v^omfort,  178;  Welfare. 

ilV  o  ^'*'''''•  ^'^^:  Economy, 
179;    Social,    180 

Consumption. 

Possibilities  of.   159 
Convenience  Goods. 
Reasons    for    buying    at    one    store. 

ool'  J^^"eraJ     distribution     for. 

^^7;  How  best  sold,  228 
Converter.  Merchant. 

Use    of    term,    110 ;    Increasing    im- 

portance  of,  110 
Cooperation. 

A  class  movement,  116;  Sources  of 
toT^«'  ^^^'  Weaknesses  of. 
119  buying     exchanges, 

Cooperative  Buying, 

As  substitute  for  buyer,  89-  Pur- 
pose of.  114;  The  mo;ement 
abroad,  115 ;  Extent  of  movement 
in  United  States,  115;  Effect  of 
low  wages  on,  117;  Loyal  support 
for  success,  117;  Effect  of  agri- 
cultural condition,  on,  118;  Kinds 
of,  118 

Cooperative  Buying  Exchanges,  91 
Cooperative  Jobbing  Houses. 

Wholesale  buying  syndicates,   122 
Cooperative  Stores. 

Methods    of    operation,    119;    Possi- 
DUities  of  saving  in,  120 
Cooperative  Wholesale  Societies, 

Membership  in.    121;   Type  of.   121; 

CottotV'ai'"'  ''""^  ^^^"*^'  ^22 

^  Types  of  middlemen  marketinir.   100 
Country  Merchant,  ».  ^"^ 

Opportunities  of,  29 
Country  Store, 

Inadequate  stock  of,   66 
Customer. 

Number  of  sales  to.  144 


INDEX 


Dealer. 

®\^ci^  ^-"^^    business    conditions. 
156;  Direct  or  indirect  appeal  to. 
181;    Function    of,    234;    Interest 
m  advertising,  249 
Bealer  Cooperation, 

And    distribution.     202;     Education 
for,  296 
Bealer  Good-will. 

Forms  of  service  to  secure.  297 
Department  Store, 

Rise   of,    15,   27;    Influence   of.    38- 
Comparison    with    general    stor^ 


38;  Operating  economies  of,  38; 
Reasons  for  high  costs  of  opera- 
tion, 39;  Competitive  appeals  of, 
40 ;  size  as  a  factor  of  competitive 
strength,  40;  Advantages  of,  41; 
Buying  strength  of,  41 ;  Price 
appeals  of,  42;  Other  appeals  of, 
43;  Competitive  weaknesses  of, 
43;  Demands  of  on  manufacturer. 
43 
Depression 

Chain  store  in  times  of,  57 
Direct  Selling  by  Mail. 

Growth    of,    12;    A    development    of 
modern   advertising,    12;    General- 
ities applied  to,  13;  Economies  in, 
13 
Distribution. 

Reasons  for  shortening  chain  of,  17, 
Old     chain     of,     17;     No     typical 
chain  in,  17;  And  dealer  coopera 
tion,  202;  Getting  dealer  coopera 
tion   for,   287;    Securing   of,   287 
Advertising  or  salesmen  for,  288 
Preparing   the  way   for   salesmen 
288;      In     isolated     communities 
289;   Selling  the  entire  line.  290 
Keeping   salesmen's    territory    cov 
ered,    291;    Thru    branches,    292, 
Use    of   missionary    salesmen    for, 
293;    And    advertising,    293;    In 
tensive    campaign    for,    294;    Fol 
lowed  by  dealer  cooperation,  295 
Selling  helps  for  the  dealer,   296 
Educating  the  dealer,  296;  Work 
ing   with    the    sales   people,    297 
Indirect    service   to    dealers,    297 
Advertising   for   dealer,    298;    Ad 
vertising    thru    the    dealer,    298 
Allocation  of   dealers'    advertising, 
299 
Distributor. 

Marketing  problems,  analysis  by. 
131;  Assuming  manufacturers 
functions,  234;  As  competitor  of 
manufacturers,  236;  Cost  to,  of 
private  brands,  242 
Distributor,  Retail, 

See  Retail  Distributor 

Ely,  Dr.  Richard  F.. 

On  producers.   22 
Environment. 

Influence  upon  markets.  151 
Exclusive  Agencies. 

Goods   best   handled   by,    96;    Selec- 
tive  distribution   thru,    219;    Def- 
inition of,  219;  Applied  to  whole- 
sale   or    retail    distributors,     219; 
Types  of  agreements,  220,  Choice 


357 

of  one  jobber,  222;  Objections  to 
by  wholesale,  222;  Desirable  for 
* 'shopping  lines,"  223;  When 
manufacturer  is  forced  to  grant, 
224;  For  special  sales  efforts, 
224;  For  quick  turnover,  224;  For 
installation  and  repair  service, 
225;  Effect  of  on  price  control, 
225;  Value  of,  for  new  goods, 
226;  Practices  vary  to  suit  con- 
ditions, 226;  Influence  of,  on 
sales,  228;  Favored  by  dealers, 
reasons  for,  229;  Bias  of  manu- 
facturer against,  230;  Uncertain 
tenure  of,  232;  Present  tendency, 
233 


Parm, 

Expanding  market  for  products,  151 
Federal  Trade  Commission.  125 
Financial  Policies. 

As  selling  points,  172 

€^eneral  Distribution. 

Compared  with  restricted  distribu- 
tion, 227;  When  best  for  retail- 
ers,  231 

General  Store. 
Eise  of.  15.  27;  Importance  of,  28; 
Competitive  advantages  of,  28; 
Banking  function  of  in  South, 
29;  Weaknesses  of,  29;  Influ- 
ences for  betterment  of,  30;  Prob- 
lems of,  31;  As  manufacturer's 
outlet,  32 

Gross  Price-List, 

Advantages  of.  272 
Guarantees, 

Use  of,  197;  Depend  on  nature  of 
product,   197 

Independent  Store, 

Meeting  chain  store  competition, 
59;  Meeting  chain  store  prices, 
60;   Possible  services  of.  60 

Jobber. 

Dependence  on  retailer,  14;  Place 
of.  16;  Definition  of.  16;  Impor- 
tance of  to  manufacturer,  16;  And 
chain  store.  46;  Service  of,  mis- 
understood, 80;  Place  of,  in  vari- 
ous industries,  80;  Net  return  to, 
81;  Gross  profit  made  by,  81;  Ex- 
pense of  conducting  business,  81; 
Sales  force  of,  83;  Intense  culti- 
vator of  market,  83;  Necessary  to 
small  dealer,  88;  Cooperative 
buying  as  substitute  for,  89: 
When     necessary,     89;     Changing 


358 


INDEX 


INDEX 


359 


status  of,   90;   Place  in  merchan- 
dising system,  90 ;  Some  lines  not 
sold  by.  92;  Inability  to  push  one 
line,    93;    Objections    to    national 
advertising.  95;   Price  cutting  by, 
96;    Best    medium    for    scattered 
territory,   97;    Place   of   in  indus- 
try,   98;    Exclusive    agencies    for, 
222;   As  manufacturer,  234;   And 
private  brands.  239;  Results  from 
pushing  own  brands,   241;   Meth- 
ods of  securing  brands,  242;  Pri- 
vate  brands  give  market   control. 
243 

loblMTfl'   Prices,  269 
Imm^xn*  Senrice, 

Relation  to  consumer's  buying  price, 
82;  Defense  of,  82;   To  manufac- 
turer.   82;    Storage,   84;   Carrying 
accounts,    84;    Variations    in,    to 
manufacturers,    85 ;    To   retailers, 
86;    Building    up    retailer's    busi- 
ness.  86;   Complete   stock  for  re- 
tailers.   86;    Saves   retailer's   time, 
87;  Small  orders  to  retailers,  87; 
Cfredit  arrangements  for  retailers, 
88;  To  consumers,  90 
Jobliiiig  Lines,  81 

As    competitor  of   mall-order    house, 
75 

Mall-Order  Honses, 

And  type  of  retail  store,  15 
Mmll-Ordttr   Selling, 

Ininences  of.    63;    Effect  on  manu- 
facturer,   63;     Effect    on    jobber, 
68;    Effect   on   rural  buying.    63; 
Extent  of,   64;    By  manufacturer, 
64;    By   retailer.    64;    By    whole- 
sale house,  64;  Rise  of,  65;  Effect 
on,    of   rising   prices,    66;    Advan- 
tage of  large   stocks.   67;    Causes 
of  rapid    growth,    67;    Appeal    of 
the    catalog,    67;    National    scope 
of,   68;  Price  appeal  in,  68;   Use 
of  loss   leaders  in.    69;    Cause   of 
low    prices    in,    69;    Low    selling 
prices   not   exclusive   to,    70;    Op- 
erating  savings    inherent   to,    70; 
Efficient      management      in,      71 ; 
Stock    turnover    in.    71;    Cost    of, 
72;    Costs    compared    with    retail 
■tore,  73;  Expense  of  doing  busi- 
ness,   73;    Lack   of  personal   con- 
tact in,    73;   Other  disadvantages 
of,  73;  Former  attitude  of  retail- 
ers   toward,    74;    Influence    upon 
country  dealer,   75;  Effect  of  de- 


clining prices  on,  75;  Effect  of 
buyers'  strike"  on,  75;  Effect 
of  rising  prices  on,  76;  New 
methods  necessary  for,  77*  Fu- 
ture of,  77  ' 

Mftxmfacture,  Conditions  of, 

Use  of  as  selling  point,  170 
Manufacturer, 

Definition    of,    9;    Selling    direct    to 
consumer,  9;  Cooperation  with  re- 
tailer, 14;   Changed  point  of  view 
toward    country     store,     33;     De- 
mands   made    on    by    department 
stores,   43;   And   chain   store.   46; 
Use  of   chain   stores   as    distribu- 
tors,    60;     Service     rendered     by 
jobber,     82;     Service    of     jobbers' 
salesmen     to,     83;     Warehousing 
service  of  jobbei-  for.  84 ;  Jobbers' 
service  in  carrying  retail  account, 
84;  Selling  direct  to  retailer,  rea- 
sons for,   93-94;   Ways  of  measur- 
ing progress,  94;  Keeping  close  to 
the   market,    94;    Following   distri- 
butions,    95;     Inability     to    trace 
sales    thru     jobbers.     95:     Selling 
direct  to  retailers,  reasons  for,  95; 
Objection  to  price  cutting  by  job- 
ber.    96;    And    exclusive    agencies, 
96;     On    selling    to    cooperatives, 
125;    Sales   prices   to  cooperatives, 
126;   Marketing  problems,   analysis 
of,   131;   Overcoming  prejudices  of 
customers.  142  ;  Market  analysis  by, 
149;    Possible   markets   for,    152; 
Domestic  and  foreign  markets  for, 
153;   Unexploited  fields  for,   153; 
Problems      of      seasonal      market. 
154;    Should   study   business  con- 
ditions.    156;     And     second-hand 
market,    161;     Strength    of    com- 
petitors.     162;      Use     of     selling 
points  by,  167;  Use  of  direct  and 
indirect     appeals.     181;     Use     of 
positive     and     negative     appeals. 
182;  Chain  stores  of,  190;  Objec- 
tion  to   chain   stores,    190;    Chain 
stores     of     non-competing,      191; 
Selling    by    mail     to     consumers, 
192;    Classes  of  buyers  to  reach. 
193;     Use    of    exclusive    agency, 
196;  Use  of  credit  by.  196;  Guar- 
antee by,  of  goods,   197;    Service 
to  customer,  198;  Securing  dealer 
cooperation,     202;      Selling     thru 
dealers,    methods   of,    219;    Exclu- 
sive    agencies,     restrictions     on, 
222;   Benefits  from  exclusive  job- 
ber,    222;      Granting     of     retail 


agencies    by,    224;    Reaching    the 
consumer,   methods  of,   225;   Atti- 
tude    toward     exclusive     agency, 
230;    Selling  thru  jobbers  or  re- 
tailers with  private  brands,   236; 
And   private    brands,    237;    Criti- 
cism   of    distributors*     competitive 
brands,  239;    Basis   of  opposition 
to  private  brand,  241;  Interest  in 
advertising,      248;      Attitude      to- 
ward   advertising,    influences    on, 
249;     Securing     favorable     public 
opinion,   251;    Why  he  advertises, 
253;     Theoretical     opposition     to 
advertising,   254;   Dealer  coopera- 
tion from   advertised  goods,   255; 
Prices    fixed    for,    268;    Gross    or 
net  prices  to  customers,   272;  At- 
titude    toward     cut-price     dealer, 
278;      And      dealer      cooperation, 
295;     Aids    for    forecasting    con- 
sumer demand.    330;   Withholding 
orders  from,  332 
Manufacturing, 

Two  factors  in,   18 
Manufacturing  Costs,  135 

Relation   to   selling   costs,   339 
Manufacturing  Policies, 

As  sales  arguments,  172 
Mark-downs, 

Reasons  for,  328 
Blark-up, 

Figuring    of,     319;     Common    base 
with     expense     and    profit,     319; 
How  figured,   322 
Market  Analysis, 

Results    from,    133;    Sex    and    age, 
first  considerations   in,    149;    Pur- 
poses   of,    304;    Applying    results 
of,  306 
Market,  Beaching  the, 

Selling,      not      standardized,      186; 
Value  of  judgment  in,  186;  Plans 
for.     must    fit     conditions.     187!: 
Trade    channels,    choice    of,    188; 
Influence     of     custom     on,     190; 
Manufacturers*  chain  stores,    191; 
Selling  by  salesman,   192;   Selling 
by  mail,    192;   Classes   of  buyers, 
193;    .Selling    prices,    factors    of, 
193;    Selling  in  bulk  or  package, 
194;     Trade-marks     and     cartons, 
194;   Advertising,   use  of.   in  sell- 
ing,   195;    Credit,    196;    Exclusive 
agency,     196;     Guarantees,     197; 
Meaning   of   service,    i98;    Chart- 
ing  cost   of   marketing.    109;    Or- 
ganizing advertising,   200;   Organ- 
izing a   selling   force,   200;    Coor- 
dination    of     departments,     201; 


Getting   distribution,    202;    Keep- 
ing complete  sales  records,  203 
Market,  Study  of, 

Reasons    for    study,     148;    Persons 
comprising,   148;  Sex  and  age  in. 
149;     Influence     of     occupations, 
150;   Influence  of  class,   150;  Un- 
developed,  finding  of,   151;    What 
manufacturer     secures     by,     151; 
City    and    country,    151;    Size    of, 
152;    Factors    limiting   extent    of, 
152;  Limitations  of,  152;  Foreign 
markets      as     possibilities,      153; 
Seeking  unexploited  markets,   153; 
Buying    seasons,     154;     Weather, 
and.        155;        Overcoming       sea- 
sonal market,   156;    When  buyers 
enter,    156;    Business    Conditions 
as   guides,    156;    How    consumers 
buy,    157;    Usual    sales    channels. 
158;     Buying    habits,    158;     Con- 
sumption    possibilities     of,    .159; 
Stability    of,     159;     Influence    of 
other   markets,    160;    Problem    of 
competition,  161;  Relative 

strength  of  competitors,  162; 
Competitor's  selling  methods, 
163;  Building  distinctive  selling 
appeal,  163 

Marketing, 

Meaning  of,  2;  Place  of,  in  busi- 
ness, 3;  Value  of  study  of  to 
production  manager,  3;  To  finan- 
cial man,  3;  To  accountant,  3; 
To  business  man,  4;  Factors  in, 
5 

Marketing  Channels, 

See  Trade  Channels 
Marketing  Plan, 

Necessary  for  successful  selling, 
128;  Matter  of  common  sense, 
131 

Marketing  Policies, 

Factors  in,   187;   Items  included  in, 
188 
Marketing  Problems, 

Analysis  of  by  manufacturer  or  dis- 
tributor, 131 
Marketing  Procedure, 

Variations  in.   111,  226;  Factors  in, 
188;   Steps  in,  199 
Marketing  and  Merchandising, 

Difference  between,  4 
Marketing  and  Merchandising,  Whole- 
sale, 
See  Wholesale  Marketing  and  Mer- 
chandising 
Merchandise  Broker, 
Classes  of,  106 


300 


INDEX 


INDEX 


FoBctions    of,     335;     Control    over 
profits,  336 

Mwcliaiifllfiiig., 

Meining  of,  2:6;  ActiTittes  of,  326 

lUildlmnan, 

System  for  each  industry,  17;  Who 
he  is,  19;  Elimination  of,  19; 
Criticism  of,  19;  Service  to  the 
consumer,  20;  Service  to  manu- 
facturer, 20 ; 'Functions  performed 
hy,  20;  As  creator  of  utilities, 
21;  As  a  producer,  21;  Why  nec- 
essary, 23;  Result  of  age  of 
specialization,  23;  Future  of,  24; 
Limited  capital,  m  justification 
for,  101 

MUl  Agent, 

In  cotton  trade,  109;  Relation  to 
broker,  109 

MlraioiiarF  Salesnan,  85;  293 

Mtonejr-Back  Policy,  310 

Sitloiiil  AdTertising  and  the  Dealer, 

Manufacturers'    interest   in    advertis- 
ing.  248;    Dealers*   interest   in   ad- 
vertising, 249;  Definition  of,  249; 
Problem     of,     249;     Brand     Con- 
sciousness    and     the     Consumer. 
250;     Building     favorable     public 
opinion,     251;     Consumer    buying 
by  brand,  251;  Why  the  manufac- 
turer   advertises.    253;    Advertis- 
ing    possibilities,     limitation     of, 
254;  benefits  from,  255;  Effect  on 
sales  volume,  257;   Lower  selling 
cost,  258;  Quicker  sales  and  more 
turnover,  259;   Dealers'  opposition 
to,  260;   Present  attitude  toward, 
261;  Effect  on  consumer  demand, 
261;     Service    to    manufacturers, 
262 
Met  Price-Idst, 

Growth  in  favor  of,   272 

Occnpttioiis, 

Influence  on  selling  methods,  150 
0¥er  Buying, 
Evils  of,  327 

Package^ 

Purpose  of,  216;  Desirable  qualities 
for,  216;  Individuality  of,  217; 
Design  of,  217;  Trade-mark  on, 
218 

Pickage  Sales,  il 

Bttented  Articles, 

Selling  price  of,  267;  Competition 
on  price  of.  268 


Perpetual  Inventory,  317 
Plant  Capacity,  135 
Price  Appeal, 

Importance  to  chain  store,  57 
Price  Control, 

Effect  of  exclusive  agencies  on,  225 
Price  Cutting,  274 
Price  Maintenance, 

Rise  and  development  of,  273; 
Manufacturers*  interest  in,  274; 
Legal  status  of,  274;  And  high 
prices,  277;  Question  of  fairness 
to  dealers,  278;  And  restraint  of 
trade,  279;  And  conspiracy 
prices,  difference  between,  280; 
As  restrainer  of  competition 
among  distributors,  281;  No  mon- 
opoly under,  281;  Illustration  of, 
282;  As  encourager  of  competi- 
tion, 284;  Nature  of  agreement, 
285 
Price  Policies, 

Importance  of  right  prices,  265;  In- 
fluence  of  cost   of  production   on, 
265;    Effect    of    selling    costs    on, 
266;  Size  of  the  profit,  266;  Sell- 
ing   price     for    monopoly     goods, 
267;   Influence  of  competition  on, 
268;  Advantage  of  definite  prices, 
268;    Jobbers',   retailers*    and   con- 
sumers'     prices,      269;      Quantity 
prices,  270;  Gross  and  net  prices, 
272;      Price     maintenance,     273; 
Legal  status  of  price  maintenance, 
274;      Manufacturer     and     resale 
prices,    274;     Price    maintenance, 
manufacturers'    interest    in,    275; 
Protecting       consumer       good-will, 
276;    Arguments   for  and  against, 
276;    Maintained    prices    as    high 
prices,    277;     Price    maintenance 
from  standpoint  of  fairness,   278; 
Price    maintenance,    judicial    ob* 
jection    to,    280;     Price    mainten- 
ance and  conspiracy  prices,  differ- 
ence   between,    280;    Price    main- 
tenance and  monopoly,  281;  Price 
maintenance     as      encourager     of 
competition,  284;  Nature  of  price 
maintenance    agreement,    285;    A 
problem  of  retailing,   309 
Private  Brand, 

Importance  of  problem  of,  234; 
Business  houses  and,  235;  Con- 
flicting with  manufacturers,  236; 
Why  made  by  manufacturers, 
237;  Question  of  unfairness,  239; 
Cost  of,  241;  And  profits,  242; 
And  quality,  243;  More  custom- 
ers from,  243;  Gives  jobber  mar- 


361 


ket  control,   243;   Attitude  of   re- 
tailer    toward,     244;     Attempted 
legislation   on,    245;    Morality    of, 
246 
Private  Brand  Distributors, 

Why   manufacturers   deal   with,    236 
Producer, 

Definition  of,  22 
Product, 

Appeal    to   masses    or   classes,   150; 
Sale  of,  dependent  on  other  prod- 
ucts,  160;   Reasons  for  study  of. 
167 
Product,  Study  of  the, 

Marketing  plan  necessary,  128;   Im- 
portance   of    trade    relations    in, 
129;     Scope    of    discussion,     129; 
Manufacturer's      point     of      view, 
131;     Results    from,     133;     Tests 
for,  133;  Raw  material  prices,  ef- 
fect of,  134;  Control  of  raw  mate- 
rial,   135;     Plant    capacity,    135; 
Cost  of  manufacture,   135;  Finan- 
cial considerations,   136;   Sales  in 
bulk    or    package,    137;     Use    of, 
138;    Improvement   in    for   future 
sales,    139;    Possibility   of    stand- 
ardizing,    140;     Relation    to    de- 
mand.   140;     Nature    of    demand, 
141;    Brand    consciousness,    142; 
Influence      of      prejudices.      142; 
Technical   or   non-technical   nature 
of,  143 ;  Necessity  or  luxury,  143 ; 
Fad  or  style,  144;  Sales  to  a  cus- 
tomer,   144;    Selling   seasons,    145 

Production,  Volume  of. 

Use  of  as  selling  point,  171 

Profits, 

And  private  brands,  242;  Gross  and 
net,  318;  To  the  layman,  318 

Quality, 

And  private  brands,  243 
Quantity  Prices, 

One    basis    of    price    differentiation. 
270 

Baw  Material, 

Price  of,   134;   Supply  of,  135;   Use 
of,  as  selling  point,  169 
Beplacement, 

Effect  on  sales,  160 
BetaU  Distributor, 

Importance    of,     13;     Definition    of, 
14;  Why  chosen  by  manufacturer, 
14 
BetaU  Fields, 

Extension  of,  305 
Betail  Market, 
Analysis  of,  304 


Betail  Merchandising, 

See  Merchandising  Betail 
Betail  Service, 

As  retailer  considers  it,  307 
Betail  Shopping  Lines,  223 
Betail  Stores,  14 
Betailer, 

Definition  of,   7;   Types  of,   14;   And 
chain  store,   46;    Service  to,  from 
jobbers,    86;    Stocks    carried    for, 
by  jobber,   86;    Service  from  job- 
ber   on    buying    and    selling,    87; 
Jobber's    service   reduces   costs   to, 
87;   Credit  service  of  jobber,  88; 
Price  differentiation  for,  91;  Rea- 
sons   for    purchasing    direct    from 
manufacturer,    91;    Buying    direct 
made  easy  for,  92;   Knows  source 
of  supply  thru  brands,  92 ;  Selling 
direct    to,    by   manufacturer,    93; 
Question  of  private  brands,   234; 
As  manufacturers,   234;   And  pri- 
vate   brands,     239;     Methods    of 
distribution    to,    292;    Special   in- 
terests of,   301;    Choosing  a  com- 
munity, 301;  Selecting  a  location^ 
302;  Methods  of  conducting  busi- 
ness,   304;    Influence   of   location. 
304;   Fixed  policies  for,  308;  Ad- 
vertising   policy    of,    308;     Price 
policy    of,    309;    Money-back    pol- 
icy, 310;  Adjustment  policy,  311 
Betailer,  Local, 

What  phrase  includes,  26;  As  seller 
of  consumer  goods,  26 
Betailers'  Prices,  269 
Bural  Merchandising, 
Change/st  in,  30 

Sales  Efforts, 

Failure  of,   132 
Sales  Force, 

Organization    of    by    manufacturer. 
200 
Sales  Management, 

Characteristics    of,    95 
Sales  Policies, 

Basis  of,  1;  Problems  in  connection 
with,    2 
Sales  Becords, 

What    they    should    show,    203 
Sales  to  Dealer, 

Factors   in,   287 
Salesmanship,    Personal, 

Defined,   1 
Salesmen, 

Selling  points  for,  182;  Use  of  in 
distribution,  288;  Preparing  the 
way  for,  288;  Keeping  territory 
covered  by,  291 


362 


INDEX 


■•Rsoiua  PvodnetSy 

Buying  of,  330;  Advance  orders 
necessary  for,  330;  Risks  at- 
tached to,  330;  Withholding  ad- 
vance  orders   for,    332 

When  personal  solicitation  appropri- 
ate,   10;    Relation   to   other    func- 
tions  of   business,    132;    The    en- 
tire line,  290;  Expense  of  in  ratio 
of  sales,  290;  Helps  to  the  dealer, 
296;    Rise    of  public   interest   in, 
340 
S«Iliiig  hf  Mail, 
Direct  to  consumers,  192;  At  whole- 
sale, 192 
SttUing  Direct, 

Meaning    of,    93;    Aided    by    dense 
population,    97;    A    natural    tend- 
ency, 98 
Silling  Direct  to  Consumer, 
See  Consumer,  Selling  to 
Selling  Expense, 

Reasons  for  high,  340;  Need  for 
reductions  in,  341;  Sales  channels 
and,  342;  How  to  reduce,  342; 
Reduction  of,  thru  standardization, 
343;  Reduction  of.  thru  increased 
turnover,  343;  Elimination  of  un- 
necessary service,  343;  Reduc- 
tions thru  better  planning,  344; 
Reduction  thru  effective  sales 
management,  344;  Seller's  respon- 
sibility for,  345;  Eflfect  of  com- 
petition in,  345;  Socialists'  point 
of  view  on,  350 
Selling,  Intensive, 

Types    of    criticism    of,    346;    Influ- 
ence on  retail  prices,  347;  Effect 
on   consumer,    348;    Reduces   unit 
cost,  349 
Selling,  Methods  of, 

Advertising,    1;    Personal   salesman- 
ship, 1 
Selling  Flan, 

Cost  of  manufacture  a  starting  point, 
135;  Influence  of  product  on,  143 
Selling  Points, 

Use  of,  167;  Finding  of,  167;  His- 
tory as  source  of,  169;  Raw  ma- 
terials as,  169;  Conditions  of 
manufacture  as,  170;  Volume  of 
production  as,  171;  Reputation  of 
managers,  171 ;  Industrial  rela- 
tions as,  171;  Manufacturing  poli- 
cies as,  172;  Financial  policies  as, 
172;  Use  of  selling  policies  as, 
173;  Must  appeal  to  consumer, 
174;  Differ  for  consumers  and 
dealers,     180;     Choice    of,     182; 


Charting  of,  183 
Selling   Policies, 

As   selling  points,    173 
Selling  Price, 
Factors  dependent  on,  55;  Elements 
in  retail,  120;   Factors  dependent 
on,   193;    Elements   in,  265:   267; 
Factors  in,  318;  as  base  for  com- 
puting  profits,   321 
Selling  Problems,  18 
Selling    Seasons,    145, 
Selling  to  the  Retailer, 

See  Retailer,   Selling  to 
Semi-Chains, 

See  Chain   Stores 
Senses, 

Appeal  to,   175  , 

Service, 

Various  meanings  of,    198;   Elimina- 
tion of  unnecessary,  343 
Shipping  Lines,  306 

Shoes, 

Method  of  selling,   17 
Small  Output, 

Effect  of,   101 
Special  Distributing  Factors, 

Kinds  of,  99;  Wholesale  middle- 
men, 99;  Small  output,  101; 
Limited  capital  justification  for, 
101;  Distance  from  the  market, 
102;  Textile  trade,  stronghold  of, 
108;  Mill  Agent,  109;  Converter, 
Merchant,  110;  Remaining  factors 
in,  110;  Auctioneer,  112 
Special  Marketing  Factors, 

Definition  of  versus  usage,   102 
Special  Wholesale  Middlemen, 

As    links    in    chain    of    distribution. 
100;  Industries  most  frequent  in. 
100 
Specialty  Salesmen, 

Cash    register    salesman.    11:     Spe- 
cialty   Salesman.    11:    For    selline 
of  high  priced  articles,  12 
Specialty  Store,  14 

Development  of,  26:  Importance  of. 
34;  Number  of.  34;  Reasons  for 
existence,  34;  Complete  stocks  of, 
35 ;  as  competitor  of  country  store. 
35;  Competitive  advantages  of, 
35;  Problems  of.  36:  Limitations 
of,  36;  Trade  area  of.  36:  Buying 
weaknesses  of.  37:  Selline  thru. 
37;  Assistance  from  manufac- 
turers, 38 

Standardization, 

In  sizes  and  styles,  343 
Staple  Lines, 

Channels  of  trade  for,  17 


INDEX 


363 


Stock, 

Influence   of  on  retail  aerencies.   224 
Stock  Control, 

Value   of.    317 
Store  Individuality, 

How   Obtained.   311 
Study  of  the  Market, 

See   Market,    Study    of   the 
Study  of  the  Product, 

See  Product,    Study  of  the 


Trade  Channels, 

Definition  of,  8;  Kinds  of,  8;  Influ- 
ence of  tradition  and  competition 
on,  8;  Selection  of  right,  188; 
Number  to  be  used,  189 ;  Influ- 
ence of  custom,  190;  Methods  of 
reaching,  192 

Trade  Custom, 

Responsible  for  special  types  of 
middlemen,  100;  Influences  of  in 
marketing,    100 

Trade  Factors, 

Common   interest   of   all,    7 

Trade-Marks,  194 

Purpose  of,  205;  Value  of,  205; 
What  they  represent,  206;  Need 
of  technical  advice  for,  206;  Defi- 
nition of,  206;  As  distinguished 
from  patent,  207;  Technical,  208; 
Registration  of,  209;  Registra- 
tion, unnecessary  for  protection, 
209;  General  requirements,  210; 
Approved  kinds  of,  211;  Prohi 
bitions  for,  212 ;  Infringement  and 
unfair  competition,  differences  be- 
tween, 213;  When  they  may  be 
sold,  214;  Applied  to  patented 
articles,  214;  On  package  and 
product,  218 


Trade-Mark  Rights, 

Loss    of,    215 
Trade-Mark  Statutes, 

Purpose   of,   208 
Trade  Name, 

Distinguished  from   trade-mark,   215 
Trade  Relations, 

Importance   of,   in   selling  plan,   129 
Turnover, 

In  chain  stores,  56;  Exclusive  agen- 
cies for  quick  turnover,  224;  Defi 
nition  of,  314;  Importance  of, 
314;  Kinds  of,  315;  Methods  of 
figuring,  315;  Monthly,  317; 
Doubling  of,  327;  Possibilities  of, 
differences  in,  328 ;  Relation  to 
quantity  prices,  329;  Excessive, 
329;  How  to  increase,  334;  In- 
crease of  as  reducer  of  selling 
costs,   343 

United   States   Supreme   Court, 

Oil    trade-marks,    210 
Utility, 

Kinds  of,  20;  Elementary,  20;  Time, 
21;  Place,  21;   Form,  21 

Wholesale  Buying  Syndicate, 

See  Cooperative  Jobbing  houses 
Wholesale  Distributor, 

Problems    of    sales    policy,    4 
Wholesale  Marketing  and  Merchandis- 
ing, 
Principles   of,    5;    Steps   in   develop- 
ment of  sales  plan,  6 
Wholesale   Selling   by   Mail, 

Eflfect  on  other  types  of  jobbers,  78; 
As   supplemental  to   salesmen,   78; 
Advantages    of    the    catalog,    78; 
ODportunities  of,    79 
Wholesale  Semi-Cooperation, 
Lines  established  in,  123 


THE      PLIMPTON     PRESS 
NORWOOD    'MASS     US'A 


INDEX 


PnMtncts, 

Biiyiag  of,  330;  Advance  orders 
mmmmmrj  for.  330;  Risks  at- 
toelied  to,  330;  Withholding  ad- 
vaace  orders  for,   332 


When  personal  solicitation  appropri- 
Sle,  10;  Relation  to  other  func- 
tions of  business,  132;  The  en- 
tire line.  290;  Expense  of  in  ratio 
of  sales,  290 ;  Helps  to  the  dealer, 
296;  Rise  of  public  interest  in, 
340 

'iliaWt'iii'  1i7  MalL 

Direct  to  consumers,  192;  At  whole- 
sale. 192 

■flgHlnj  Direct, 

Meaninf  of.  93;  Aided  by  dense 
population.  97;  A  natural  tend- 
ency. 98 

MUnc  Direct  to  Consumer. 
iSr#«  Consumer.  Selling  to 

■•lllilf  Expense, 

Reasons  for  high,  340;  Need  for 
reductions  in,  341;  Sales  channels 
and,  342;  How  to  reduce,  342; 
Reduction  of.  thru  standardization, 
343;  Reduction  of.  thru  increased 
turnover,  343;  Elimination  of  un- 
necessary service,  343;  Reduc- 
tions thru  better  planning,  344; 
Reduction  thru  effective  sales 
management,  344;  Seller's  respon- 
sibility for,  345;  Effect  of  com- 
petition in.  345;  Socialists'  point 
of  view  on,  350 

Silling.  Intensive. 

Types  of  criticism  of,  346;  Influ- 
ence on  retail  prices,  347;  Effect 
on  consumer,  348;  Reduces  unit 
cost.  349 

Belling.  Methods  of. 

Advertising,  1;  Personal  salesman- 
ship, 1 

Selling  Plan, 

Cost  of  manufacture  a  starting  point, 
135;  Influence  of  product  on,  143 

Selling  Points, 

Use  of,  167;  Finding  of,  167;  His- 
tory as  source  of,  169;  Raw  ma- 
terials as,  169;  Conditions  of 
manufacture  as,  170;  Volume  of 
production  as,  171;  Reputation  of 
managers,  171;  Industrial  rela- 
tions as,  171;  Manufacturing  poli- 
cies as,  172;  Financial  policies  as, 
172;  Use  of  selling  policies  as, 
173;  Must  appeal  to  consumer, 
174;  Differ  ifor  consumers  and 
dealers,     180;     Choice     of,     182; 


Charting  of,  183 
Selling  Policies, 

As    selling  points,    173 
Selling  Price, 
Factors  dependent  on,  55 ;  Elements 
in  retail,  120 ;   Factors  dependent 
on,    193;    Elements  in,  265:   267; 
Factors  in,  318;  as  base  for  com- 
puting profits,   321 
Selling  Problems,  18 
Selling    Seasons,    145, 
Selling  to  the  Retailer, 

See   Retailer,   Selling  to 
Semi-Chains, 

See  Chain  Stores 
Senses, 

Appeal  to,   175 
Service, 

Various  meanings  of,   198;   Elimina- 
tion of  unnecessary,  343 
Shipping  Lines,  306 

Shoes. 

Method  of  selling.   17 
Small  Output. 

Effect  of,   101 
Special  Distributing  Factors, 

Kinds  of,  99;  Wholesale  middle- 
men, 99;  Small  output,  101; 
Limited  capital  justification  for. 
101;  Distance  from  the  market. 
102;  Textile  trade,  stronghold  of. 
108;  Mill  Agent,  109;  Converter. 
Merchant,  110;  Remaining  factors 
in,  110;  Auctioneer,  112 
Special  Marketing  Factors, 

Definition  of  versus  usage.   102 
Special  Wholesale  Middlemen. 

As    links    in    chain    of    distribution. 
100;  Industries  most  frequent  in. 
100 
Specialty  Salesmen. 

Cash    register    salesman.    11;     Spe- 
cialty   Salesman.    11:    For    selling 
of  high  priced  articles.  12 
Specialty  Store.  14 

Development  of,  26;  Importance  ot 
34;  Number  of.  34:  Reasons  for 
existence,  34;  Complete  stocks  of, 
35 ;  as  competitor  of  country  store, 
35;  Competitive  advantaeres  of, 
35;  Problems  of.  36:  Limitations 
of,  36;  Trade  area  of.  36:  Bifying 
weaknesses  of,  37:  Selling:  thru. 
37;  Assistance  from  manufac- 
turers. 38 
Standardization, 

In  sizes  and  styles.   343 
Staple  Lines, 

Channels  of  trade  for,  17 


INDEX 


363 


Stock, 

Influence   of  on  retail  aeencies.    224. 
Stock  Control. 

Value   of,    317 
Store  Individuality. 

How   Obtained.   311 
Study  of  the  Market, 

See   Market,    Study    of   the 
Study  of  the  Product, 

See  Product,    Study  of  the 

Trade  Channels, 

Definition  of,  8;  Kinds  of,  8;  Influ- 
ence of  tradition  and  competition 
on,  8;  Selection  of  right,  188; 
Number  to  be  used,  189;  Influ 
ence  of  custom,  190;  Methods  of 
reaching,  192 
Trade  Custom, 

Responsible     for     special     types     of 
middlemen,    100;   Influences  of  in 
marketing,    100 
Trade  Factors, 

Common   interest   of   all,    7 
Trade-Marks,  194 

Purpose    of,     205;     Value    of,     205; 
What   they   represent,    206;    Need 
of  technical  advice  for,  206;   Defi- 
nition   of,    206;    As    distinguished 
from  patent,  207;  Technical,  208; 
Registration     of,      209;      Registra- 
tion,   unnecessary    for    protection, 
209;    General    requirements,    210; 
Approved    kinds    of,    211;    Prohi 
bitions  for,  212;  Infringement  and 
unfair  competition,  differences  be- 
tween,   213;    When    they    may    be 
sold,    214:    Applied    to    patented 
articles,     214;     On    package    and 
product,  218 


Trade-Mark  Eights, 

Loss   of,    215 
Trade-Mark  Statutes, 

Purpose   of,   208 
Trade  Name, 

Distinguished  from  trade-mark,  215 
Trade  Relations, 

Importance  of,  in  selling  plan,  129 
Turnover, 

In  chain  stores,  56;  Exclusive  agen- 
cies for  quick  turnover,  224;  Defi 
nition  of,  314;  Importance  of, 
314;  Kinds  of,  315;  Methods  of 
figuring,  315;  Monthly,  317; 
Doubling  of,  327;  Possibilities  of, 
differences  in,  328;  Relation  to 
quantity  prices,  329;  Excessive, 
329;  How  to  increase,  334;  In- 
crease of  as  reducer  of  selling 
costs,   343 

United   States   Supreme   Court, 

On    trade-marks,    210 
Utility, 

Kinds  of,  20;  Elementary,  20;  Time, 
21;  Place,  21;   Form,  21 

Wholesale  Buying  Syndicate, 

See  Cooperative  jobbing  houses 
Wholesale  Distributor, 

Problems   of   sales   policy,    4 
Wholesale  Marketing  and  Merchandis- 
ing, 
Principles   of,   5;    Steps   in   develop- 
ment of  sales  plan,  6 
Wholesale   Selling   by   Mail, 

Effect  on  other  types  of  jobbers,  78; 
As  supplemental  to  salesmen,   78; 
Advantages    of    the    catalog,    78; 
Opportunities   of,    79 
Wholesale  Semi-Cooperation, 
Lines  established  in,  123 


THE      PLIMPTON     PRESS 
NORWOOD    'MASS     US'A 


